Capital Allowances Reformed in ‘Budget for Growth’
Chancellor Jeremy Hunt put a £27 billion transformation of capital allowances at the heart of his ‘Budget for Growth’ as he aimed to incentivise investment in the UK. The Chancellor also made significant changes to the childcare and pension systems as he sought to ease labour shortages, while the Energy Support Guarantee (EPG) was maintained at its current level for another three months.
The Spring Budget followed an improved forecast from the Office for Budget Responsibility (OBR). The OBR said it expects the UK to avoid a technical recession this year, with a stronger than expected performance from the economy as inflation continues to fall.
Despite avoiding a technical recession, the UK economy will shrink by 0.2% this year before growing 1.8% next year, by 2.5% in 2025 and by 2.1% in 2026, the OBR predicted.
The UK’s inflation rate is forecast to fall to 2.9% by the end of this year, down from 10.7% in the last three months of 2022.
The Chancellor announced a £27 billion transformation of capital allowances from April 2023 for three years. During this period, companies across the UK will be able to take advantage of ‘full expensing’. This will see corporates write off the full cost of qualifying plant and machinery investment in the year they invest. The government intends to make this measure permanent when fiscal conditions allow. There will also be an extension to the 50% first-year allowance in the same period.
In addition, there will be a £500 million package for research and development intensive businesses.
Mr Hunt announced 12 investment zones across the UK, with £80 million in funding for skills and support. Each zone will be focused around green industries, digital technologies, life sciences, creative industries or advanced manufacturing in an area that has underperformed economically.
Reforms to childcare were key to Mr Hunt’s plans to remove the barriers to work for parents, the disabled and the over-50s.
The Chancellor is aiming to help fill the one million plus vacancies in the UK economy with certain measures. These include 30 hours of free childcare for working parents in England, expanded to cover one and two-year-olds.
In addition, a ‘returnerships’ apprenticeship targeted at the over-50s will refine existing skills programmes to make them more accessible to older workers, giving them the skills and support they need to find a recognisable path back into work.
The Chancellor also made changes to the pension system to provide incentives for doctors and other highly-skilled workers to remain in the labour market. This saw the lifetime allowance on pensions abolished, while the tax-free yearly allowance for pension pot will rise from £40,000 to £60,000.
As high energy costs continue to affect the UK, the Chancellor extended the Energy Price Guarantee (EPG) at £2,500 for another three months, while fuel duty was frozen once more.
Mr Hunt said:
Our plan is working – inflation falling, debt down and a growing economy.
Britain is on a lasting path to growth, with a revolution in childcare support, the biggest ever employment package and the best investment incentives in Europe.
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