UK budget report 2023

15 March 2023

4 min read

On the 15th of March 2023, Chancellor Jeremy Hunt delivered the UK 2023 Spring Budget, setting out the government’s plans to reduce inflation, grow the economy, and reduce debt.  Here is a summary of the policy decisions in the sectors which are of relevance to our clients.

Economic and fiscal overview

The UK Office of Budget Responsibility (OBR) now expects the UK to avoid a recession in 2023, although economic conditions remain challenging in the short term. 

• GDP growth forecasts have been revised upwards from -1.4% to -0.2% in 2023.  Growth for 2024 is forecast to be +1.8% and is expected to be above 1.8% per year through to 2027-28.
• Inflation is forecast to fall from 10.7% in Q4 2022 to 2.9% in Q4 2023.
• Government debt is expected to be 92.4% of GDP next year (2023-24), then increasing over the period 2024-27, before falling back to 94.6% in 2027-28.
• The government annual deficit is forecast to fall from 5.1% of GDP in 2023-24, down to 1.7% in 2027-28.
• The unemployment rate is expected to rise by less than one percent to 4.4%.

Taxation

• The government confirmed the previously announced increase in the corporation tax rate from 19% to 25% in April 2023.  The super-deduction allowance, introduced in 2021, will end on 31st of March 2023. This will be replaced with a full expensing capital allowance scheme from 1st April 2023 until 31st March 2026.which will allow UK companies to write off the cost of qualifying plant and machinery investment.
• To support SMEs, from 1st April 2023 the rate of the Research & Development Expenditure Credit (RDEC) relief will increase from 13% to 20%.

Life Sciences

To support the life sciences industry, the government announced plans to reform the regulations to accelerate the approvals process for new medicines and medical technologies.

Investment Zones

Twelve investment zones have been announced in the budget.  Each zone will be eligible for funding to develop the growth of a targeted industry sector such as green industries, digital technologies, life sciences, creative industries, and advanced manufacturing.  In England, each zone will have access to £80 million over 5 years.

Eight of the proposed areas for investment zones are in the Midlands and North of England, which reflects the government’s levelling-up strategy.

Energy

• The government announced plans to pursue nuclear as a part of its energy supply and resilience strategy and to this end it plans to class nuclear power as “environmentally sustainable”, giving it access to the same investment incentives as renewable energy to encourage private investment.
• It will also launch Great British Nuclear (GBN) to stage competitions for Small Modular Reactors, with the ambition of selecting and co-funding the leading technologies.
• The government will provide up to £20 billion for Carbon Capture, Usage and Storage (CCUS) projects.

At OBM, we are surprised to see that hydrogen did not feature in the budget, despite the recent strong focus and funding from the UK government in this area.  Furthermore, no new policies to enable investment into renewable energies were announced, although the Chancellor proudly mentioned that the UK is leading the world in the offshore wind sector.

Digital Technologies

• A commitment to provide £900m of funding to develop an Exascale supercomputer as a new AI Research Resource was announced.
• The government will award a £1 million prize every year for the next 10 years to researchers that drive progress in critical areas of AI.
• Quantum technologies will benefit from £2.5 billion of government funding over 10 years for the development of new types of computers, secure communications, and wider improvements to sensing, imaging and timing.

At OBM we closely monitor economic policy in the UK and Japan, and its effect on international business and investment.  If you would like to discuss how recent policy changes affect your business, then please contact us here.