Chamber Reacts to Budget
Commenting on today’s Budget, Subrahmaniam Krishnan-Harihara, Head of Research at Greater Manchester Chamber of Commerce, said: “After the market reaction to last September's mini-budget and the rather sombre note Chancellor Jeremy Hunt struck in his Autumn Statement, it was apparent that today's Spring Budget had to strike a balance between measures for enabling business growth and maintaining fiscal stability. Positioned as a "Budget for growth", today's announcements were an attempt by the Chancellor to deliver a more upbeat tone using the additional headroom in public finances. The macroeconomic environment for this Budget is best described as uncertain. The British economy displayed unexpected resilience and grew by 0.3% in January, albeit after an equally unexpected 0.5% decline in December 2022. The UK may be past peak inflation but wage inflation and input prices remain concerns for businesses. Consequently, businesses do not have the confidence to commit to capital investment projects. Business investment in the UK has lagged behind other OECD countries for nearly a decade. At the same time, the UK labour market remains tight: unemployment is low, employment increased by 0.1 percentage points in the three-month period between November 2022 and January 202 and the estimated number of open job vacancies still remains high at 1.12 million.
“For businesses, the new scheme allowing full expensing of eligible capital spend will be welcome and it encourages business investment providing there is clarity in the economic outlook and on government plans for business taxation. The numerous fiscal events since the pandemic have brought about a mix of changes, rollbacks and tweaks. That very system of constant revisions itself presents uncertainty to businesses and the ambition to unlock business investment cannot be brought about without giving clarity and certainty.
“Although wholesale energy prices have decreased, energy prices remain high for most households. The Energy Price Guarantee, which was due to be increased to £3,000 from 1st April, has now been capped at £2,500 for three months until June and if the downward trend in wholesale prices continues, the Energy Price Guarantee could fall to under £2,500 in summer. While this is a welcome development, the £400 rebate on energy bills will not be available from April meaning the actual bill could go up for many households. The situation for businesses’ energy prices remains that support will end shortly piling more cost pressures on many firms.
“Some of the Chancellor's announcements such as the confirmation of more devolved powers and funding, Levelling Up Partnerships and Investment Zones will have direct impact on Greater Manchester. Rochdale and Oldham will be part of the former, while the city region could also have an Investment Zone. Details for these new measures are not yet available but if funds for these are to be allocated via competitive bidding, broader levelling up cannot be achieved.
“Amongst today's announcements, the one that could have the most impact on economic inactivity and workforce participation is help with childcare. Families with children aged one and two who do not currently receive any childcare support will now receive up to 30 hours per week of childcare. Along with additional funding for nurseries for the existing free childcare offer and for schools and local authorities to increase the supply of wraparound care, these measures present a definite opportunity to increase female participation in the workplace. However, it appears that the new childcare support for children under the age of three will be limited to 38 weeks of the year meaning there are still some gaps in this. In another "back to work" measure that is largely targeted at doctors, senior civil servants and other very high earners, the annual tax-free pension allowance has been increased to £60,000 while, to the surprise of all, the lifetime allowance has been abolished. Although it could encourage some senior NHS consultants to postpone retirement, it is debatable whether this measure will have much impact on decreasing the economic inactivity rate across the board or on encouraging more people to come out of retirement.
“Finally, Jeremy Hunt's speech did not mention some of the bad news and concerns. The OBR forecasts estimate that there will be real drop in disposable household income in this year because wage rises have not kept pace with inflation. Mr Hunt also proposed to adhere to capital spending plans as set out in the autumn statement, which will see capital investment frozen for the next two financial years. There was also the recent announcement that HS2 will delayed by a further two years. In his speech, the Chancellor reeled of some big numbers in the target cohorts for his many "back to work" announcements. The real question is whether they can get back to work without significant improvements to transport capacity and reliability.”