Hunt attempts to deliver a problem-solving Budget

At that point, his task was to provide some calm after the chaos of the mini-Budget and the ensuing weeks. The outlook was gloomy with the OBR forecasting that the UK economy would contract by 1.4% in 2023 with living standards falling further than at any time in recent decades. The outlook for living standards remains poor but the economy is due to contract by just 0.2% this year and, taken as a whole, growth is improved in subsequent years to leave the economy 0.6% larger in real terms in 2027/8 than the OBR predicted in the autumn.

This gave the Chancellor a little scope to spend more, tax less or meet his fiscal rule (to have debt as a percentage of GDP falling in the fifth year of the forecast period) with a greater buffer. Hunt’s approach – judged by where the big numbers are on the scorecard - has been to focus on business investment and increasing the labour market. He is spending a little more and taxing a little less to do so; the buffer on his debt rule barely exists.

The biggest single measure financially is the increased generosity of the capital allowances regime with the introduction of 100% expensing for main rate assets. This is for three years only. Clearly, the Chancellor wants to make this permanent but to do so would mean breaching his fiscal rule of debt falling. The Government is vulnerable to the charge that it lacks a clear strategy in this area (I am surely not the only one who looks back fondly on the Corporate Tax Roadmap of 2010) but has at least sought to address the cliff edge created by the hike in the corporation tax rate from 19% to 25% combined with the end of the super-deduction.

The next biggest measure is the increase in support for childcare. The thinking here is that this may help encourage more parents to return to work. This was the biggest element of a wider package to encourage an expansion of the labour market. A further element was the abolition of the Lifetime Allowance within the pensions tax system, ostensibly because the cap was incentivising doctors to retire early. Scrapping the LTA is likely to prove contentious in that the beneficiaries will be high earners and that this will give rise to inheritance tax planning opportunities. Anti-avoidance measures on pensions may follow in due course.

Overall, this was a fuller Budget than expected a few weeks ago. The list of measures in the Treasury’s Red Book came to six pages (the measures in the previous Budget in October 2021 came to two and a half pages, which is much more typical) but could be described as being technocratic. There were no big crowd-pleasing giveaways but an approach of identifying problems (like low business investment or a tight labour market) and attempting to address them.

There was nothing within it that is likely to frighten the markets (which is just as well in the circumstances), although the Government is only going to meet its fiscal rules if it delivers very tight spending policies following the General Election and increases in fuel duty that have, once again, been deferred. Many will believe that neither is plausible. Critics will say that there lacks a clear vision for the British economy but it has to be acknowledged that the Government is operating with considerable political and economic constraints.

It is also worth saying a word or two about what was not there. Labour is keen to highlight the issue of the taxation of the resident non-domiciled and there was always a chance that the Government might set out reforms itself to shoot Labour’s fox. Nothing was said. There was also very little in here about housing, although the property sector will be interested in the announcement of twelve new investment zones.

In conclusion, this was a Budget that is consistent with Rishi Sunak’s political strategy. This was not about seeking to win back support for the Government immediately but an attempt to establish a reputation for solving problems and getting things done. It is on that basis that he hopes to fight the 2024 General Election.

Further commentary from our pensions and real estate teams can be accessed below.

The Spring Budget 2023 - a real estate perspective

Chancellor announces one of the biggest changes to pensions tax rules - what it means in practice