Spring Budget: UK will not enter a recession, says Jeremy Hunt

As the Spring Budget is revealed, Chancellor Jeremy Hunt, said the UK economy is “proving the doubters wrong”, as forecasts from the Office of Budget Responsibility have shown the country will avoid entering a recession in 2023.

During the Spring Budget announcement, Hunt stated that inflation in the UK will fall from 10.7% in 2022 to 2.9% by the end of 2023.

However, the Chancellor did add that the UK must “remain vigilant” and that he “will not hesitate to take whatever steps are necessary” for the economy.

Additionally, Hunt declared the government is on track to bring underlying debt to 92.4% of GDP by next year, falling every year after until 2027-28.

Hunt and the Conservatives have set themselves the task of building up the UK as “Europe’s most dynamic economy” and will tackle the nation’s longstanding productivity issues. In his address, Hunt focused on two, in particular – low business investment and higher economic inactivity than comparable economies.

The Chancellor set four pillars of his industrial strategy to address these issues: enterprise, employment, education, and everywhere.

The spring budget has shown the Chancellor is for the most part sticking to his November budget plan, and Katharine Arthur, head of private client and tax expert at haysmacintyre, is glad to see no further changes to stealth taxes.

“Now, the dust should finally be able to settle, and individuals can start to plan their taxes more effectively,” she notes.

Billed as the “budget for growth” by the Conservatives, here are some noteworthy inclusions and exclusions of the March statement.

Corporation tax rise   

The rise in corporation tax will go ahead as expected from 19% to 25% for companies with over £250,000 in profits, Jeremy Hunt told the Commons.

Alistair Nichol, tax partner at Evelyn Partners says: “Few expected the Chancellor to row back from the planned hike in corporation tax from April. However, businesses will be disappointed by the lack of a clear roadmap to bring down corporation tax in the coming years.”

Businesses will be relieved that the Chancellor has acted to soften the blow from the double hit of rising corporation tax rates and the ending of the super deduction, according to Jon Richardson, head of tax policy, PwC.

Richardson believes this, combined with increased R&D incentives, leaves the UK in a competitive position “compared to the other G20 economies albeit somewhere short of the “most pro-business tax environment anywhere.”

Abolition of the lifetime tax-free pension allowance  

In a surprise announcement, Hunt said he will increase the pensions annual tax-free allowance from £40,000 to £60,000 and will abolish the Lifetime Allowance – previously set at £1.07m.

The Chancellor said he had “listened to the concerns” of senior NHS doctors who say alterations to pension taxes are “making them leave the NHS”.

Stevie Heafford, tax Partner at HW Fisher says: “These are long and overdue reforms to make the UK pension system more attractive and simpler.

“Higher paid workers who might have felt forced into early retirement or reducing hours to avoid higher tax rates, are now incentivised to continue working and contributing to the UK’s economy,” he adds.

Additional tax relief for R&D-intensive SMEs

A £1.8bn package of support for companies was also announced by Hunt, meaning that on every £100 spent on research and development, eligible SMEs – those that spend 40 per cent of the expenditure on R&D, will be able to claim back £27.

After the last two budgets failed on the government’s aim to strengthen the UK’s position as a global science and technology power, Anthony Lalsing, innovation and R&D tax partner at Menzies LLP, says this was finally some “good news.”

“While this did not mark a full return to the generosity of previous R&D tax credits, it at least provides some comfort for SMEs looking to fund valuable ongoing R&D projects”, he adds.

IR35 ignored again in Spring Budget

After months of calls from the self-employed for IR35 to be repealed again or for it to be altered, the off-payroll legislation was disregarded again in the budget.

Qdos CEO, Seb Maley, says the Chancellor completely ignoring the IR35 legislation, “smacks of irony in a so-called back-to-work Budget.”

“The government wants retirees to return to work but won’t address the issues plaguing IR35 reform. These tax changes forced many freelancers and contractors into early retirement, at a huge cost to the economy,” states Maley.

This view is echoed by Tim Walford-Fitzgerald, private client partner at HW Fisher, who labels the lack of mention of IR35 as “disappointing.”

“The failure to address IR35 in today’s budget means we continue to see inequality for contractors who are being taxed as though they are an employee – but without the benefits and protections that a full-time employee gets,” Walford- Fitzgerald adds .