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UK ‘Growth Budget’ leaves businesses unimpressed

by | Mar 19, 2024

The UK’s last spring Budget before a general election was unveiled on Wednesday by Chancellor of the Exchequer Jeremy Hunt who described it as “a plan to grow the economy; for better public services; and to make work pay”.

Most business leaders, however, remained unimpressed at a time the nation is in a technical recession, and with one leading tech entrepreneur warning that the government seemed to be ignoring the fact that the industry needed to continue to attract talent from overseas because of continuing skills shortages in the UK.

The Chartered Institute of Personnel and Development (CIPD) also criticised the Budget for doing “very little” to tackle skills shortages at a time when there are still almost a million vacancies in the jobs market.

For his part, Mr Hunt pointed out that UK growth had been higher than any other large European economy in recent years. Indeed, latest projections from the Office for Budget Responsibility (OBR), published in conjunction with the Budget, forecast 0.8 per cent growth this year and 1.9 per cent in 2025. The OBR also predicted that inflation would fall below the government’s two per cent target in the coming months.

The Chancellor’s main Budget announcement centred on a two per cent reduction in National Insurance payments taken from employees’ wages.

He also undertook to abolish the tax breaks enjoyed by non-domiciled residents (so called ‘non-doms’ who are not required to pay UK tax on overseas earnings) and to extend the ‘windfall’ tax on energy companies’ profits from March 2028 to 2029. Business and first class airline passengers will also face paying higher taxes on their tickets.

Among other announcements were plans for the government to spend £160 million on buying a site in North Wales for the new Wylfo nuclear plant; and a £360 million investment in manufacturing R&D.

“We are sticking with our plan by backing the industries of the future with millions of pounds of investment to make the UK a world leader in manufacturing, securing the highly skilled jobs of the future and delivering the long-term change our country needs to deliver a brighter future for Britain,” said Mr Hunt.

But Ben Willmott, head of public policy at the CIPD, said the government’s focus on boosting R&D and growth in the tech and green energy sectors was too narrow.

“This Budget sorely lacked a broad economic strategy to improve living standards and boost productivity across the economy including in sectors like retail, hospitality, transport, logistics and social care which employ millions of people,”  he said.

“There is a real and urgent need for a workforce plan for the UK to raise employer investment in skills and support workers’ wellbeing and participation in the labour market.

“There was also very little to address skills and tackle the hard-to-fill vacancies facing many employers. The government is right to prioritise improving public sector productivity. However, there needs to be a complimentary focus on improving people management and workforce skills if new technology is to be adopted effectively to improve the delivery of public services.”Roger Barker, policy director at the Institute of Directors (IoD), said that while the Budget had largely delivered “a stable and credible policy framework for business”, there was little in it that could be regarded as a game-changer for firms.

“It fell short of a delivering a comprehensive plan for sustainable growth and investment,” he maintained. “The net fiscal giveaway of £13.9 billion, or 0.5 per cent of GDP, in 2024/25 may, at the margin, help lift the economy out of its mild recession before an election later this year. However, business still faces the prospect of an economy that is unlikely to experience meaningful growth for some time – despite the slightly more optimistic growth forecasts from the OBR.”

But Mr Barker did believe that the Chancellor’s pledge to extend the full ‘expensing’ tax benefits to include the leasing of assets would be helpful, particularly to SMEs.

He added: “The Chancellor rightly acknowledged that skills and labour shortages are a major problem for many UK enterprises. Although cuts to national insurance and boosts to child benefit provision may attract some people back into the workforce, the Budget offered little to address the economy’s deep-seated skills gaps. This was a major omission and business will be looking to a future government to urgently address this issue.”

Shevaun Haviland, director-general of the British Chambers of Commerce (BCC), said the Budget was always set to deliver less for business than last year’s Autumn Statement, although she said the changes to National Insurance “will provide some momentum”.

But she added: “Beyond this, there were no major announcements to help shift the dial on conditions for business. The clock is now ticking to the general election – and this Budget could be the last fiscal event before voters go to the polls.

“Business confidence is improving but the coming months will remain challenging for many companies. It is vital that the economy remains front and centre of the campaign to come.” Rain Newton-Smith, chief executive of the Confederation of British Industry (CBI), believed the cut in employees’ National Insurance contributions and making childcare benefits available to householders earning £60,000 a year (up from £50,000) would “incentivise work at a time when access to labour represents a major obstacle to business growth”.

She also felt the plan to extend full capital expensing to leased and rented assets would offer greater momentum to efforts to increase business investment.

“However,” Ms Newton-Smith added, “the extension of the energy profits levy weakens the competitiveness of the sector. Business will be looking for more emphasis on delivery by developing a Net Zero Investment Plan to crowd in the private finance needed to deliver the clean energy transition.”

More upbeat was Chris Hayward, policy chairman of the City of London Corporation, who described the Budget as a “much-needed shot in the arm” for capital markets in the UK.

Among the Budget announcements were plans to launch a new ‘British ISA’, offering an extra, £5,000 tax-free allowance to “encourage more people to invest in UK assets”; and the introduction in April of a new British Savings Bond, which will offer a guaranteed rate, fixed for three years. Mr Hunt also reiterated last week’s announcement that defined contribution pension schemes will be required to publicly disclose how much they have invested in UK companies.

“These measures will drive greater performance and secure better returns for hard-working British savers,” Mr Hayward said. “The pension reforms unveiled by the Chancellor are integral to unlocking the full potential of investment in high-growth British businesses seeking to start and scale in the UK and internationally. Additionally, increased retail investment through the newly announced British ISA will further bolster participation in UK markets.”Modernisation of the non-dom regime is appropriate. We need to ensure that the changes are positive and proportionate, sending the right signal that the UK is a great place to live and invest.”

And Stephen Phipson, chief executive of the manufacturers’ organisation Make UK, broadly welcomed the Budget announcements, which he said built on earlier initiatives to boost the sector.

“The Chancellor clearly sees manufacturing as a key sector in the economy of the future and is slowly, but surely, putting in place the building blocks of an industrial strategy,” he said.“The extension of full expensing to leased assets will benefit smaller companies in particular and, we would urge draft legislation to be brought forward as soon as possible so that this measure can be made permanent at the earliest opportunity.”

During his speech to the House of Commons, Mr Hunt also revealed that AstraZeneca planned to invest £650 million in the UK to expand their footprint on the Cambridge Biomedical Campus and fund the building of a vaccine manufacturing hub in Liverpool.Russ Shaw, founder of Global Tech Advocates, commented that while it “reassuring” to hear the Chancellor emphasise his desire to help UK tech entrepreneurs, Mr Hunt seemed oblivious of the importance of overseas workers to the sector.

“While the Chancellor was right to identify technology investment as a key way to enhance the productivity of Britain’s public services, his desire for the UK to become the world’s next Silicon Valley seems incompatible with his vision of a ‘high skill economy not dependent on migration’,” Mr Shaw said.

“So much of Silicon Valley’s early success was built on opening the door to the brightest and best the global talent market has to offer. With only £7.4 million for a new AI upskilling pilot announced by way of reskilling programmes, overseas workers have a vital role to play right now in plugging the nationwide skills gaps currently hampering the sector’s growth.”

Julian David, CEO of industry body techUK, added: “This Budget builds on a number of positive policy choices made by the government over the past year. A new plan to boost productivity in the NHS and across public services will deliver a much-needed injection of funds for digitisation, resulting in a better service for the public.

“Additional steps to review how HMRC (His Majesty’s Revenue and Customs) is administering the R&D tax credit, giving clarity on how new public compute investments will be accessed and new funding to encourage digital and AI adoption, will also be welcome.”