At 12.30 this afternoon, Jeremy Hunt delivered his first Spring Budget as Chancellor of the Exchequer, in what he described as a ‘budget for growth.’ He reported on an economy that was on the right track and lauded the difficult decisions he took in the Autumn of last year, stating that as a result the OBR suggests the UK will avoid a technical recession in 2023.
The OBR also reported that inflation in the UK will fall from 10.7% in the final quarter of last year to 2.9% by the end of this year.
Whilst it usually takes a few days for the detail to be worked through, particularly for devolved regions, the Chancellor’s approach could be described as cautious, certainly in comparison to the more radical approach of his predecessor, Kwasi Kwarteng.
Hunt was keen to announce a number of measures to help deal with the cost of living crisis, including an extension on energy support, a lower duty rate for beer sold in pubs, action to freeze fuel duty and extend the 5p cut, and a £63m fund to provide support to leisure centre swimming pools struggling with high energy costs.
The Chancellor also said that he will meet his 3% annual deficit target in five years’ time.
Echoing the four pillars signalled in his ‘Bloomberg speech,’ namely enterprise, education, employment and everywhere, Hunt announced twelve new investment zones, with at least one from each of Wales, Scotland and Northern Ireland, and funding packages for regeneration in areas across England.
He announced a new regulatory approval regime for the Pharma sector, reclassified nuclear power to being ‘environmentally sustainable,’ and adopted a new strategy on how to grow AI in the UK through a R&D funding pot.
To break down barriers to employment, the Chancellor will publish a white paper on disability benefits which aims to reform the system and announced tax cuts for carers. He has also announced a new programme aimed at the over fifties called ‘returnerships’ to help get retirees back into employment to ease labour market pressures.
The Chancellor has also announced that the annual tax-free allowance for pensions will rise from £40,000 to £60,000, and he has abolished the maximum lifetime tax allowance.
Also confirmed were measures around childcare, including incentives for new childminders, a relaxation of staff-to-child ratios and 30 hours of free childcare to working parents.
What does it mean for Northern Ireland?
With Stormont finances facing a potential £500m shortfall next year, attention was on what additional money would be available for the devolved institutions.
In today’s budget speech, the Chancellor announced an additional £130m funding for Northern Ireland, including funding for tackling paramilitarism and to help get more young people into further education.
The Chancellor also confirmed that Northern Ireland would be home to one of the twelve new investment zones but added that the final design choices and agreement will be subject to the restoration of the Northern Ireland Executive.
Some of the other policies announced will not automatically apply to Northern Ireland, particularly if they policy area is devolved, and it may take several days before local officials in the Department of Finance work through the full implications of new spending commitments announced today.
Whilst the Chancellor announced the extension of energy support for another three months, in Northern Ireland, because of differences in our electricity and gas market, there is a separate scheme in place. Given that the underlying costs for gas and electricity are coming down, households here will therefore see the amount of discount on their bill coming down. (More information is available here.
As a rule, however, allocations for England will have a Barnett consequential for Northern Ireland, meaning additional funding for the Executive. An example is the announcement today for additional spending on childcare, which unless ringfenced, is money that can be spend on whatever priorities identified by the Executive.
Additional spending on UK wide ‘reserved’ areas such as defence, will not result in any additional funding for NI.
Announcements on tax (save for areas where Scotland and Wales have responsibility), benefits, state pension and minimum wages are UK wide, but there are of course variances in welfare mitigations in Northern Ireland and on issues such as energy support schemes.
From a Northern Ireland perspective, one of the issues that is sure to raise some concern is the increase in the headline rate of Corporation Tax to 25%, meaning that Northern Ireland has a CT rate twice as high as our neighbours in the Republic of Ireland (12.5%). Whilst other tax breaks have been announced for business, the CT rate is often seen as a valuable tool in attracting and retaining investment.
Hunt instead announced a new policy of ‘full expensing,’ a policy which allows businesses to immediately deduct the full cost of certain investments in new or improved technology, equipment, or buildings from their tax bill. Proponents of the policy argue that it encourages companies to invest more, which, in the long run, raises worker productivity, boosts wages, and creates more jobs.
The ‘Budget for Growth’ headlines.
- Confirmed rise in CT rate to 25% (double that of RoI) to take effect in April
- £5 billion increase in defence spend over two years and £30m to increase capacity for veterans
- 30 hours of free childcare for working parents for every child over the age of 9 months
- £20 billion support for carbon capture over the next 20 years.
- £400m for levelling up partnerships
- Extra £200m funding to fix ‘potholes.
- ‘Full expensing’ policy, replacing the UK’s super-deduction investment allowance
- Universal Credit reform including scrapping the system used to assess eligibility for sickness payments and introducing more rigorously applied sanctions to those who fail to meet requirements.
- Energy price cap extended for 3 more months
- Nuclear power is to be classified as ‘environmentally sustainable,’ and announcement of competition for small modular reactors.
- Further announces Great British Nuclear to provide 25% of electricity by 2050
- A raise to the £40,000 cap on tax-free pension contributions. The lifetime allowance is also set to rise to
- Price of cigarettes to rise to £11.80 at 6pm
- 5p fuel duty cut to be extended.
- The introduction of 12 new investment zones, backed by £80 million in investment, including at least one in Northern Ireland.
- £63 million for leisure centre swimming pools.
- Launch of new ‘AI sandbox’ and a £1m ‘Manchester prize’ for the best AI research each year for the next decade
- A “returnership” scheme to get retirees back into work.
- Annual tax-free allowance for pensions will rise from £40,000 to £60,000, and he has abolished the maximum lifetime tax allowance.
- New incentives for childcare; new childminders to receive £600 incentive payment, rising to £1200 for those joining through an agency.
- An aspiration for all schools to offer wraparound care from 8am – 6pm by 2026
- £130 million extra for Northern Ireland in Barnett consequential, including funding for tackling paramilitarism and widening educational access.
