The YF Economy and Finance Network responds to the Chancellor's Spring Statement of Wednesday 15th March.
What is the Spring Statement?
The Spring Statement is one of two statements the Treasury makes each year to Parliament, following the publication of forecasts on the economy by the OBR. It provides an update on the overall state of the economy, and outlines any progress or further changes needed following from the previous Autumn Statement.
What were some of the key announcements?
- Pension tax relief -
○ The amount you can contribute to a pension fund tax free will rise from £40,000 to £60,000 per annum beginning April 2023.
○ The Lifetime Allowance of £1,073,100 will be scrapped.
- Capital allowances - From 1 April 2023 until 31 March 2026 investments made by companies in qualifying plant and machinery will qualify for a 100% first-year allowance for main rate assets.
- Corporation tax - As previously announced, the main corporation tax rate will increase from 19% to 25% from 1 April 2023.
- Investment Zones - 12 new ‘Investment Zones’ are planned to be created in various parts of the country, intending to spur regional economic growth while reducing disparity across Britain.
- Childcare - The Chancellor announced 30 hours of free childcare for every child over the age of 9 months
- Fuel duty - Fuel duty will be frozen and a 5p reduction will be maintained for another year.
- Energy price support - The Energy Price Guarantee (EPG) will be kept at £2,500 for an additional three months (April to June), with the Government claiming this will prevent the public from reaching the upper limit of Ofgem’s Price Cap (£3,280) during this period.
- Carbon capture storage - £20 billion will be ring fenced to support the early development of CCS technologies over a 20-year period.
- Climate change agreement - An update to the Climate Change Agreement (CCA) for businesses was confirmed (after being promised over two years ago), so while originally due to close in H1 2023, it will now be extended to the end of Q1 2025.
YF Economy & Finance response:
With the relative civility of recent budgets gone by, one simply can’t help but wonder whether all is running quite smoothly at the Treasury. Don’t be fooled. With the Tories remaining at near historic lows in the polls, this was yet another budget of spin and no substance; a flashy, soundbite driven Spring Statement fixated on grabbing headlines, neglecting the economic warning signs that have been desperately trying to capture the attention of our front bench over the last few years.
Take the example of childcare, with 30 hours of free childcare for working parents in England expanded to include all children from 9 months to 3 years old. While the announcement had certainly painted itself across all the front pages during budget week as some sort of holy grail, its tangible benefit is unclear. While Hunt argues that it presents itself as a solution to the UK’s stagnant productivity by trying to increase labour supply, what he’s failed to realise is that those working age parents he’d been trying to target, had mostly been in employment anyway. While the personal financial relief afforded to these parents is significant, its tangible effect on the economy will probably be less so. This is corroborated by the IFS response, who said “The impact this will have on labour supply is highly uncertain, though the OBR score it as the biggest policy contribution to increasing numbers in work.” With the labour market remaining as buoyant as it has ever been, Hunt and the treasury need to redirect their efforts, working alongside the private sector to create a sustainable, dynamic job market that effectively targets those in voluntary unemployment.
The introduction of ‘full expensing’ - 100% capital allowances for qualifying plant and machinery, corroborates recent decisions made by AstraZeneca and Arm Holdings to spurn the UK as a destination for investment, with it being abundantly clear that the UK currently has a problem attracting it. If the UK economy is to accomplish the goals both political parties have set for it, it will need to solve this problem. That said, the measures announced are too short-sighted and limited in scope to have any real effect. The policy’s temporary nature cannot durably increase business investment in the way that the country requires. As the OBR report notes, its effects are likely to be confined to a two-year rise in investment – from 2025-6 – before it falls back once the measure stoops. As Sam Richards, director of Britain Remade, points out in the Guardian: “investments require planning”. Crucially, however, the policy by design does not delve deeply into the business of reforming our institutions to make the UK a better place for businesses to invest in. The UK economy is an overly-centralised, finance-dominated mess lacking the skills to make it truly prosper, with the real benefits of a post-Brexit economy yet to be seen. If reform is to work, it should aim at these issues.
There were several notable omissions in regard to green policy. It’s disappointing that even with the threat of the climate crisis more urgent than ever before, no new funding for renewables was announced. A lack of commitments for the UK’s nascent hydrogen sector risks stalling its transition from an over-reliance on ‘Blue Hydrogen’ to majority ‘Green Hydrogen’ (a key element of supporting the UK’s transition to net-zero). Prior to the budget, a coalition of NGOs had called for greater funding to improve energy efficiency in buildings and the installation of heat pumps, but this was not heeded, not unsurprising given the failure of the UK’s last national home insulation scheme – the Green Homes Grant. A lack of focus on nature (despite being called for by several green groups), means that meaningful steps to support positive action on nature have been avoided.
Overall, as Labour have so brilliantly coined, this budget could simply be summarised with the term ‘sticking-plaster politics’. The economy risks more wounds without urgent intervention, and that will only come with a change in government.