Budget reflection: Stability in uncertain times
Much of Mr Hunt’s speech today was focused on what he termed his four pillars of productivity: enterprise, employment, education, and “everywhere”.
But despite the unveiling of this novel plan, his statement thankfully did not deliver any unwelcome surprises. That’s quite a relief, and I think he has listened to business leaders’ concerns about the turmoil of last year, and the overriding need for stability in uncertain times.
Certainly, the key measures announced today have been known for some considerable time, which has given businesses time to adjust.
These measures include the increase in the corporation tax rate from 19 per cent to 25 per cent for those businesses with more than £250,000 of taxable profits. As expected, this rate increase is tapered between the lower and upper rates for companies with profits exceeding £50,000 but below £250,000. And businesses with taxable profits below £50,000 will continue to pay tax at the current 19 per cent. This all takes effect from 1 April 2023.
The start of next month has also been confirmed to herald other significant changes to the corporation tax regime, including the withdrawal of the “super-deduction” for capital expenditure. This has been a very generous relief which allowed businesses to deduct 130 per cent of the cost of qualifying capital expenditure against profits. There is strong evidence to show that businesses have made significant investment decisions on the back of this measure.
It was therefore heartening to hear Mr Hunt announce what is in effect a replacement scheme which allows businesses to expense all qualifying capital costs against taxable profits. We will need to see exactly how this relief works, but it does sound like a boost for business investment decisions. The plan is to implement this relief for the next three years, with a view to making it permanent if public finances allow.
Other measures that businesses will be pleased with include an enhanced research and development tax relief for research-heavy businesses (defined as those that incur 40% or more of their total expenditure on research). This new relief works out at 27 pence in the pound.
Of other interest regionally will be the new investment zones, with both Liverpool and Greater Manchester earmarked as likely venues. It was also really pleasing to hear that the £1m annual prize for artificial intelligence research is to be called the “Manchester Prize”, after the ground-breaking contributions made here over the years.
Overall, this looks like a positive Budget for businesses.
But perhaps one of the bigger announcement confirmed today relates to individuals. This is the change to the lifetime allowance for pensions. This refers to the total amount that individuals can add to their pension pot over a lifetime. This was previously set at £1.07m. However, this cap has now been abolished entirely, and I would expect a number of people to take advantage of this, particularly those towards the end of their careers whose pots are already fairly full. The challenge will, of course, come that this only benefits people who are already relatively well off, as does the other change which is to increase the maximum amount anyone can add in any one year from £40,000 to £60,000. However, it is clearly targeted at a specific demographic as part of Mr Hunt’s “Four Es” productivity drive, and I think it will be broadly welcomed.