Highlights Budget November 2023
The Highlights Budget November 2023 were presented against a background of inflation falling from recent peaks. Annual inflation for the last quarter of 2023 is now expected to be 4.8%, against a previously anticipated 2.9%. With recent large price increases now baked in, the government’s 2% target is now forecast to be hit in the first half of 2025, a year later than previously thought.
GDP growth is now forecast to be 0.6% for 2023, compared with the projection last March of a negative 0.2%. For the next four years, it is expected to average 1.6%, so about 0.5% less than previously thought. Cumulative real growth from 2023 to 2027 is now 2.4% lower than predicted in the March forecast.
The OBR expects living standards, as measured by real household disposable income, to be 3.5% lower than pre-pandemic in 2024/25.
Higher inflation, particularly in an environment of fixed tax thresholds, has resulted in a sharp increase in forecast tax receipts. Because departmental and other spending has been largely unchanged in cash terms despite the higher inflation, by 2027/28 that results in real spending cuts of over £19 billion.
The Highlights Budget November 2023 were announced:
- National Insurance – The Chancellor announced a reduction in national insurance rates for employed and self-employed people. Although the thresholds are unchanged, Class 1 primary (Employee) national insurance will be reduced from 12% to 10% from January 2024. That is charged on monthly income between £1,048 and £4,189. From April 2024, Class 4 (profit-related) national insurance for self-employed people has been cut from 9% to 8% on profits between £12,570 and £50,270 and the flat-rate weekly contribution of £3.45 is being scrapped in order to remove the complexity for these workers.
- Full expensing for Businesses – For companies, the main tax change will only be of real benefit to larger companies. The temporary ‘full expensing’ of capital expenditure was scheduled to end in March 2026. That has now become permanent and allows companies to claim a 100% deduction against taxable profits for the cost of ‘main rate’ fixed asset purchases.
- Tax Benefits for Freeports and Investment Zones – Three new investment zones were announced to focus on advanced manufacturing in West Midlands, East Midlands and Greater Manchester. These are expected to unlock £3 billion of private sector investment and create 65,000 new jobs. The tax benefits for investment zones and freeports will be extended for a further five years. A further new investment zone was announced in Wales.
- Tax cut for Hospitality, Retail and Leisure businesses – The 75% discount on business rates for businesses in the hospitality, leisure and retail sectors has been extended for another year.
- Research and Development – The R&D expenditure credit (RDEC) and the small and medium-sized enterprise (SME) intensive schemes are being merged into one.
Other measures announced included:
- The main National Living Wage rate will be increased by 9.8% to £11.44 per hour from 1 April 2024 and the age threshold will be reduced by two years to 21.
- Alcohol duty will be frozen for a further year, up to August 2024.
- The state pension triple lock will be implemented in full, resulting in an increase in State Pensions of 8.5% from April, and despite rumours to the contrary, Universal Credit and other working-age benefits will rise by 6.7% in line with the September inflation rate. The local housing allowance cap will also be raised to the 30th percentile of local rent levels.
- The Chancellor announced a set of pension reforms intended to enhance the benefits for those saving for retirement, encourage a more integrated pensions market, and allow pension funds greater flexibility to diversify their investment portfolios. Employees will be able to have contributions paid into a scheme of their own choice, rather than one selected by the employer.
- Although there are plans to reduce the overall size of the civil service to below pre-pandemic levels, HMRC will be provided with resources to tackle the tax gap, expected to yield an additional £5 billion over the forecast period.
- The processing of planning applications will be sped up, with local authority fees being refunded where deadlines are not met.
- £50m in funding was announced for apprenticeship schemes, to boost skills in engineering and other key sectors.
- Welfare reforms will come into force in the latter part of next year. Individuals who have been unable to secure employment for more than 18 months, but are deemed fit to work, will be required to engage in work experience placements. Benefit claimants who either turn down employment opportunities or fail to collaborate with job centre staff will be required to re-register for benefits, resulting in a temporary suspension of their benefit access. Furthermore, there will be significant changes to the existing guidelines for recipients of benefits based on health conditions that prevent them from working.
- Other measures were announced to boost housebuilding, including funding for local schemes in Leeds, Coventry and London, and a scheme to mitigate pollution risks intended to unblock the building of 40,000 homes via funding to the Local Nutrient Mitigation Fund.
The Chancellor of the Exchequer stated that the Highlights Budget November 2023 were “110 measures to help grow the British economy”. For the full detail on the economic and fiscal policies aimed at addressing the UK’s current challenges click here.
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