Could The UK Budget Be Bad For The Economy?

Far from boosting the UK economy, the Spring Budget could damage the economy, many business leaders fear.

Most of the 250 business leaders questioned in a pre-Spring Statement survey by thought leadership specialist agency iResearch Services say they are very concerned about the mini-Budget on Wednesday 15 March.

Around four in 10 (39%) of those taking part in the pulse survey believe Chancellor Jeremy Hunt’s Spring Budget could harm the UK economy. Meanwhile, 32% say it will be neither negative nor positive, and only 28% predict a positive result.

A similar percentage (40%) of respondents are very concerned about the Spring Statement announcement, with 17% slightly concerned, 24% concerned, 16% extremely concerned and 4% not worried at all.

Yogesh Shah, CEO of iResearch Services, says, “It’s unusual for UK business leaders to be so pessimistic ahead of the Budget. However, many still believe ministers are trying to find workable solutions, our survey suggests. We look forward to finding out if this support will materialise in the Spring Statement – and, if so, how.”

Some estimates suggest that Jeremy Hunt has £10 billion more in the kitty than reflected in official forecasts from November 2022. He faces pressure to lower energy costs, which help businesses and households, and to kick-start the sluggish UK economy, which is set to shrink 0.3% in 2023 and not exceed pre-COVID levels until the end of 2024, according to the latest figures from the British Chambers of Commerce.

Business leaders fear a rise in corporation tax from 19%-25% and the end of corporation tax super-deduction, which allows businesses to cut their tax bill by 25p for every £1 that they invest. Both are due to begin in the coming weeks, and will affect investment and growth prospects.

Despite their Budget worries, the majority (48%) of those surveyed, from C-suite executives to senior managers, think the Government has the best interests of UK businesses in mind, compared to 41% who say that it does not. 49% believe the Government is sufficiently aware of the key challenges that business face.

Yet there is widespread agreement that any positive outcomes from the Budget are unlikely to be felt by UK businesses in the short term.

When asked when the mini-Budget announcements will affect their industry in 10 out of 11 key categories, the majority of respondents say the medium term. The only case where most respondents (48%) predict an immediate benefit is concerning the UK cost of living. Respondents could give more than one answer.

Survey participants came from around the British Isles. The sectors represented were Technology, Media and Telecoms (23%), Financial Services (22%), Professional Services (21%) Corporate Finance/Private Equity (19%) and Energy (14%).

Almost half of respondents (49%) believe the government is sufficiently aware of the key challenges faced by their sectors, with 40% saying ministers are not clued-up and 11% unsure. More than six in 10 (62%) are confident the UK government will work to resolve these issues while 29% disagree and 9% are uncertain.

So, we know how effective Britain’s business leaders think the Budget will be, but what measures do they want the Chancellor to include in the Spring statement?

Here are some practical examples from technology, financial services, professional services, health, energy and sustainability business leaders and organisations of what they would like Jeremy Hunt to include in the Spring Budget.

SPRING BUDGET IDEAS FOR ALL UK BUSINESSES

Continuation of capital investment scheme
The continuation of the corporation tax super-deduction, which allows businesses to cut their tax bill by 25p for every £1 that they invest and is set to expire on 31 March, or alternative investment schemes.

Cost of living support for employees
One-off tax-free “cost of living” support allowance in 2023-24 to enable employers to help staff on lower incomes.

Free childcare to aid workforce
Free childcare should be provided for one and two-year-olds to get more young parents into work.
Confederation of British Industry

Lower business taxes
Business taxes must be lowered; otherwise, from April, UK companies will face the highest tax burden since Clement Attlee and Stafford Cripps in 1948.

Business rates aid for SMEs
Raise the business rates relief threshold from a rateable value of less than £15,000 to £25,000.

R&D support for longer
Delay April’s planned cut from research and development tax credits for small companies.
Federation of Small Businesses

Medium-term growth plan
“A credible medium-term plan to take us beyond the current macroeconomic difficulties onto a path of sustainable growth.”
Institute Of Directors

Coherent growth policies
“Everywhere they turn, businesses see barriers to investment and expansion… We urgently need to see coherent policies from government that set the economy on a path to growth.”
Shevaun Haviland, Director-General, British Chambers of Commerce

New training fund
A new employer training fund, financed through unspent apprenticeship levy funds, to provide tax relief to support reskilling.
Make UK

TECHNOLOGY

More investment in emerging technologies
Clearer priorities for unlocking investment in emerging technologies. More long-term certainty would send a stronger signal to the market.
UK Corporate Leaders’ Group

Re-establish Tech Nation
The wrapping up of Tech Nation at the end of March has been criticized by the tech industry, with many calling for a replacement. The growth platform has provided budding startups with unrivalled support networks and funding circles that helped businesses grow, and it’s clear the hole it has now left quickly needs to be filled.
Mike Rhodes, CEO, ConsultMyApp

Set up a single digital identity system
More tax incentives for start-ups and investment in digital infrastructure, including the establishment of a single digital identity system to allow seamless access to public services and the private sector.
Steve Hare, CEO, Sage

CGT incentives for tech SMEs
“With the annual exempt amount for CGT already reducing to £6,000 for 2023/24 and halved again for 2024/25, it is our hope that the rates of CGT will not change and the current benefits of Business Asset Disposal Relief will remain in an attempt to incentivise tech SMEs to continue to set up and grow their businesses in the UK.”
Georgia Gibson-Smith, Manager, Menzies Heathrow

FINANCIAL SERVICES

Improve HMRC service
HMRC service levels have fallen to an “unacceptably low level” and must be urgently addressed. “We increasingly hear from our members about the severe delays, business disruption and frustration that has become a regular occurrence when dealing with HMRC.”
Leading UK accountancy industry bodies, including the ICAEW, ACCA and AAT

Enterprise to engineer growth
“While none of the Chancellor’s Four Es (Enterprise, Education, Employment and Everywhere) are particularly easy areas to tackle, Enterprise could be the most appealing to engineer growth. In the approaching era of the 15% Global Minimum Tax, the UK may have an opportunity to revisit the previously scaled-back investment zones initiative to leverage existing investment to create an attractive investment proposition.”
Chris Sanger, Head of Tax Policy, EY

Higher tax levies for banks?
“There’s speculation around how certain specific industries might be taxed differently from others – e.g. banks paying higher levies than technology firms.”
AI Budget prediction, Accountingweb

Financial health checks for older workers
The Government is looking at expanding its “midlife MOT” scheme to offer financial health checks to 50 to 64-year-olds and giving companies subsidies for occupational health services. As larger employers are likely to offer an occupational health plan any new policy was likely to be of more help to smaller employees. “The plan would also require time and support from the employer, in tandem, any phased or limited return can often place additional pressures on colleagues which employers will need to carefully manage.”
Ed Stacey, employment law partner at PwC

Stability in UK tax system
“Our members continue to ask for stability, certainty and significantly fewer changes to the UK tax system. By having greater certainty in the tax system, businesses can plan investment decisions. A clearer picture of the long-term fiscal framework would also have a positive impact on business confidence.”
Chris Campbell, Head of Tax, Institute of Chartered Accountants of Scotland

PROFESSIONAL SERVICES

Tax transparency
“Tax transparency will continue to feature high on the agenda. While the EU public country-by-country reporting (EU PCBCR) requirements will not apply until 2024 (in most EU Member States), many large UK groups with significant EU presence will need to prepare in 2023, e.g. gathering data, aligning with financial reporting of taxes and Pillar Two compliance. Groups will need to agree with senior stakeholders whether to report the minimum required under EU PCBCR or more broadly in line with the overall tax transparency approach.”
Amanda Tickel, Head of Tax & Trade Policy, Deloitte

No tax cuts or rises expected
“Overall, we expect no tax cuts, no tax rises but possibly a big unveil on green and levelling up, in part to compensate for the removal of the super deduction and the increase in the headline rate of corporation tax.”
Tim Sarson, Partner, UK Head of Tax Policy and Sharon Baynham, Director, Tax Policy, KPMG

HEALTH

Pharmaceutical innovation-led growth
Chief Executive, Richard Torbett, says the life sciences sector invests more than any other in UK R&D and must be at the heart of the Government’s plans for innovation-led growth. From 2019-2023, medicines spending dropped 12% in real terms. “But we’re increasingly seeing the UK lose out on life science investment at the time we need it the most. This can’t be sustainable and we’re urging the Government to agree an ambitious, new deal with industry that can reverse this decline and puts us on a par with our global competitors.”
Association of the British Pharmaceutical Industry

Bigger NHS budget
“History teaches us that the NHS budget is almost certain to get topped up. Geopolitical developments and considerations could lead the government to decide that 2% of GDP spent on defence is no longer enough. Legislation still commits the government to returning to spending 0.7% of national income on overseas aid. Together these would mean even bigger cuts elsewhere, if the plans for overall spending are adhered to.”
Institute for Fiscal Studies

End the NHS pay dispute
Use the unexpected boost in Britain’s finances to offer a substantial pay rise to public sector workers. “There’s a moral case to give workers a decent pay rise, but we can now see even clearer that the financial case exists as well.”
Unite, lead officer, Onay Kasab

Increase mental health budget
Currently, one in six adults is experiencing moderate to severe depression. The government must introduce real terms increase to the level seen before 2015/16 to fund services. They will need £1.6–£3.6 billion, an annual average of £410–£900 million per year until 2023/24 (depending on demand) over and above existing funding to deal with the current surge in people seeking support.
NHS Confederation

ENERGY

More hydrogen solutions
An emphasis on hydrogen, which can aid decarbonisation in hard-to-abate sectors and develop a business model to help producers blend hydrogen into gas networks.

Grow smart energy markets
Commitments to growing new smart energy markets to maximise energy network infrastructure capacity.

Revise energy security plan
Update the British Energy Security Strategy to include an energy storage strategy by the end of 2023 to clearly define what business models will be developed to secure investment in seasonal energy storage. This will boost investment and innovation within the sector.
The Energy Networks Association

Extending energy efficiency aid
The UK needs to break the high-cost cycle through energy efficiency. “Government can help reduce bills and emissions for business by extending the Industrial Energy Transformation Fund (IETF) from 2025 to 2030, and by launching ‘Help to Green’ vouchers for small and micro businesses.”
Confederation of British Industries

Broader Carbon Border Adjustment Mechanism
“The UK has been considering a Carbon Border Adjustment Mechanism (CBAM) for the steel industry due to concerns that steel with lower environmental credentials could be imported more cheaply than domestic production. This could pave the way for a broader CBAM, similar to the one the EU is introducing. The government has previously committed to consulting on carbon leaking measures and a CBAM, although no date was provided. “
Tim Sarson, Partner, UK Head of Tax Policy, KPMG

SUSTAINABILITY

Regain lost ground
Enable the UK to regain lost ground in developing cleaner, greener energy by implementing an investment allowance under the Electricity Generator Levy and Urgently finalise and legislate the hydrogen business model.

Increase eco-market competitiveness
Help firms get ready for next winter and regain lost ground on green growth again by supercharging UK competitiveness in green markets.
Confederation of British Industries

Green jobs action plan
A new action plan for net-zero skills and jobs, to specific timescales, sectors and regions. “This offers opportunities for better quality green jobs and could contribute to the government’s levelling up agenda.”
UK Corporate Leaders’ Group

Vouchers for eco improvements
Small businesses should have vouchers to help them invest in “green” improvements to premises, including solar panels, improved insulation and heat pumps.
Federation of Small Businesses

Net-zero tax cut rewards
Corporation tax cuts for companies with net zero emissions.
Institute of Directors

R&D for green investment
“If there is a rabbit out of the hat, we think it will be an extension to the super-deduction and the R&D regime focussed on green investment. The challenge will be whether it will be a big enough deal to disrupt policies being rolled out in the US and EU.”
Tim Sarson, Partner, UK Head of Tax Policy, KPMG

Green taxes to influence consumers
“The government will still see taxes as influencing future consumer behaviour and as a good source of income – for example, using road pricing to replace revenue lost from fuel duties as we all switch to electric cars.” Further consultations on reducing single-use plastics may be announced. “The government may choose to insist on uniformity for electric car charging connections and power input, and put new planning rules in place to require charging point installation for new commercial property development sites over a certain size.”
Jon Hickman – Corporate Tax Partner, BDO

Help to Grow Green
The Mission Zero report calls for the launch of a Help to Grow Green campaign offering information and advice to small businesses so they can plan ahead.
Jon Richardson, Head of Tax Policy PwC UK

Boosting green R&D
“The Spring Budget would be a sensible time to announce any enhanced deductions for sustainability-related R&D investment. This could have a dual benefit, not only supporting the creation of the green technology and products the UK will need to achieve our national 2050 net zero targets, but also encouraging companies to change their business models to invest in green technology for their own use.”
Chris Sanger, Head of Tax Policy, EY

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