Economic Review – March 2023

UK expected to avoid recession

Revised forecasts from the Office for Budget Responsibility (OBR) suggest the UK will not enter recession this year despite households facing a record drop in spending power.

Chancellor Jeremy Hunt unveiled the independent fiscal watchdog’s latest projections during his Spring Budget statement delivered to the House of Commons on 15 March. Mr Hunt declared it was a “Budget for Growth” before announcing updated OBR figures which predict that, although the economy will contract this year, it will not now see two consecutive quarters of decline and thereby avoid the technical definition of a recession.

The updated figures suggest the UK economy will shrink by 0.2% over the course of this year – which represents a significant upgrade from last autumn’s forecast of a 1.4% contraction – with growth then expected to hit 1.8% in 2024 and 2.5% in 2025. This improved outlook comes in spite of a sharp fall in real household incomes which the OBR said was “the largest two-year fall in living standards since records began in the 1950s.”

Prior to the Chancellor’s statement, the latest monthly gross domestic product figures published by the Office for National Statistics (ONS) had confirmed that the UK economy is currently performing better than analysts had feared. ONS said the economy expanded by 0.3% in January; this represents a sharp rebound from December’s 0.5% decline and exceeded the consensus forecast in a Reuters poll of economists which had predicted a growth rate of 0.1%.

Survey data released towards the end of last month also suggests the economy is likely to have expanded across the whole of the first quarter. The preliminary headline figure from the S&P Global/CIPS UK Purchasing Managers’ Index came in at 52.2 in March, a second successive monthly reading above the 50 threshold which indicates growth in private sector output.

Inflation rises unexpectedly

The Bank of England’s Monetary Policy Committee (MPC) has continued its efforts to contain price rises by sanctioning another interest rate hike but said it believes February’s surprise jump in inflation was due to “one off elements” which will probably fade quickly.

Data released last month by ONS showed that the Consumer Prices Index (CPI) annual rate – which compares prices in the current month with the same period a year earlier – stood at 10.4% in February. This was a notable jump from January’s figure of 10.1% and significantly higher than the consensus forecast in a Reuters poll of economists which had predicted the headline inflation rate would actually fall to 9.9%.

ONS said the cost of food and drinks had the largest upward impact on February’s figure. Food prices rose at the fastest rate in 45 years partly due to shortages of some salad and vegetable items, while higher food and drink prices in pubs and restaurants also pushed the CPI rate up.

Prior to the unexpected inflation jump, analysts had been evenly divided over the outcome of March’s MPC deliberations. However, after release of the inflation data, a rate rise seemed inevitable and the MPC duly obliged, increasing Bank Rate by 0.25 percentage points on 23 March, the eleventh rise in a row.

Minutes to the MPC meeting played down the significance of February’s resurgence in inflation, reiterating the Committee’s belief that CPI is ‘likely to fall sharply’ across the rest of this year. Indeed, the minutes stated that inflation is expected to decline to a lower rate than previously anticipated due to the Chancellor’s ‘Energy Price Guarantee’ Budget announcement and further falls in wholesale energy prices, prompting speculation that the MPC may now pause its run of rate hikes. The Committee’s next decision will be announced on 11 May.

Markets (Data compiled by TOMD)

UK markets responded positively at month end after the UK’s 2022 Q4 GDP data was revised upwards, indicating that a recession had been avoided in the second half of 2022. Slower-than-expected inflation data in the US added to hopes of a pause in interest rate hikes from the Federal Reserve.

In the UK, the FTSE 100 ended March on 7,7631.74, a loss of 3.10% in the month. The domestically focused FTSE 250 closed the month down 4.90% on 18,928.30, while the FTSE AIM closed March on 809.27, a monthly loss of 5.83%.

Across the pond, the Dow Jones index closed March up 1.89% on 33,274.15, while the NASDAQ closed the month up 6.69% on 12,221.91. On the continent, the Euro Stoxx 50 closed the month on 4,315.05, registering a gain of 1.81%. In Japan, the Nikkei 225 closed March up 2.17%, on 28,041.48.                

On the foreign exchanges, the euro closed the month at €1.13 against sterling. The US dollar closed at $1.23 against sterling and at $1.08 against the euro.

Gold closed the month trading at around $1,979 a troy ounce, a monthly gain of around 8%. The gold price continues to rise as demand for the precious metal holds firm with expectations of the Fed easing interest rate hikes and a crisis of confidence in some major European lenders and US regional banks. Brent crude closed the month trading at around $80 a barrel, a monthly loss of around 4.5%.

    

UK pay growth slows

Both official statistics and survey data released during the past month suggest that the rate of growth in wages may have started to stall.

The latest pay data published by ONS showed that average weekly earnings excluding bonuses rose at an annual rate of 6.5% in the three months to January. This compares with a figure of 6.7% in the October-to-December period, the first slowdown recorded in this measure of wage growth since late 2021.

Additionally, the data revealed that growth in pay levels continues to be outstripped by rising prices. After adjusting for inflation, regular pay actually fell by 2.4% in the three months to January compared to the same period a year earlier. This represents one of the largest falls in real wages since comparable records began in 2001.

Recently released research also suggests that the rate of growth in pay may now have passed its peak. According to a survey of 266 organisations conducted by HR specialists XpertHR, UK employers expect to see a slight fall in pay awards over the course of this year, with pay settlements as a whole predicted to average 5% during 2023, down slightly from the current level of around 6%.

Retail sales rise in February

The latest official retail sales statistics have revealed another surprise monthly jump in sales volumes, while more recent survey evidence points to emerging “shoots of optimism” within the retail sector.

According to ONS data, sales volumes rose by 1.2% in February, the largest monthly gain since October last year. Data revisions also revealed that sales in the previous month grew more strongly than originally reported, with January’s figure revised up to a 0.9% rise.

ONS Director of Economic Statistics Darren Morgan, however, did note that the broader picture remains “subdued” with price rises continuing to hit consumer spending power. Mr Morgan added, “In the latest month, discount department stores performed strongly with food shops also doing well as consumers, confronted with cost-of-living pressures, cut back on eating out or purchasing takeaways.”

Survey data released last month though did highlight further signs of positivity with GfK’s consumer confidence index hitting its highest level in a year. March’s CBI Distributive Trades Survey also reported the first positive sales expectations amongst retailers for seven months, with CBI Principal Economist Martin Sartorius commenting, “Activity in the retail sector showed signs of stabilising after a challenging winter. This resilience has helped inspire some spring shoots of optimism.”

It is important to take professional advice before making any decision relating to your personal finances. Information within this document is based on our current understanding and can be subject to change without notice and the accuracy and completeness of the information cannot be guaranteed. It does not provide individual tailored investment advice and is for guidance only. Some rules may vary in different parts of the UK. We cannot assume legal liability for any errors or omissions it might contain. Levels and bases of, and reliefs from, taxation are those currently applying or proposed and are subject to change; their value depends on the individual circumstances of the investor. No part of this document may be reproduced in any manner without prior permission.

All details are correct at the time of writing (03 Apr 2023).

On the up – downsizing

Cost-of-living difficulties are forcing people to reconsider their housing situations, with a new survey1 showing that three in 10 UK homeowners are considering saving money by moving to a smaller property, relocating or living with others.

Race for space?

After the pandemic-induced race for space, downsizing is back on the cards. Almost one in five respondents have considered downsizing, while 4% have so far made the move to a smaller home to meet increasing costs.

Six in 10 said moving to a smaller home would be something they might consider to help with the cost of living.

Regional variation

Homeowners in central London are especially drawn to downsizing or relocating, with more than a third thinking of moving elsewhere to help their financial position.

Yorkshire and the Humber residents were the least prone to downsizing, while homeowners in the North East were least likely to consider relocating.

Cash for space

In total, of those considering downsizing, more than seven in 10 cited the lower cost of living as a benefit. The research quantified the decision to downsize as a £120,820 saving for each bedroom given up.

Though this could be a significant saving, the downsides to downsizing were also mentioned by respondents, namely moving costs (39%), a lack of personal space for belongings (38%), distance from family and friends (29%) and being in an unfamiliar area (28%). For help weighing up your options, get in touch.

1Halifax, 2022

As a mortgage is secured against your home or property, it could be repossessed if you do not keep up mortgage repayments.

Insuring your solar panels?

More people are installing solar panels to their homes, spurred on by environmental concerns or the prospect of reduced reliance on the National Grid. Putting thousands of pounds on your roof can boost the value of your property, but do solar panels affect your home insurance?

Come rain or…

Having emerged in the 1950s, solar technology has come a long way; more than a tenth of the UK electricity supply now comes from solar power in the summer months1. Moreover, contrary to popular opinion, solar panels are not only effective in fair weather: they typically generate between 10% and 25% of their standard power output on non-sunny days.

Is solar worth it?

The initial outlay for installing solar panels is often significant, though many studies point to the longer-term benefits of the investment. With energy bills sky high and forecast to rise further, the average household with solar panels is estimated to save between £210 and £514 per year2. Additionally, panels can earn you cash for electricity generated that you don’t use.

Home insurance impacts

Most home insurance policies now include solar panels as standard. Insurers consider solar panels to be part of your house, no different from the roof or walls, which means they are usually fully covered by buildings insurance. Since solar panels are usually included as standard, it shouldn’t cost anything extra to get them insured.

Even so, it’s always best to check with your insurer. Indeed, keeping your insurer up to date on any significant changes to your property is good practice anyway as it helps them know exactly what’s included in the structure of your home.

1Government Energy Trends Report, September 2022

2Energy Saving Trust, 2022

As a mortgage is secured against your home or property, it could be repossessed if you do not keep up mortgage repayments.

News in Review

“We were really a bit on a knife edge as to whether there would be a recession… but I’m a bit more optimistic now”

Last Wednesday, the Bank of England’s Monetary Policy Committee (MPC) voted to increase Bank Rate to 4.25%, the highest level for 14 years.

Seven members of the committee opted for a 0.25% rise, with thetwo dissenting voices preferring to maintain it at 4%. Analysts now expect the rate to peak at 4.5% in the summer.

The decision to increase Bank Rate followed the announcement that inflation had reached 10.4% in the year to February, its highest level for 40 years. Although inflation is expected to fall significantly in the second quarter of 2023, higher prices continue to put a strain on household spending.

A higher Bank Rate will translate into increased mortgage costs for some homeowners, though savers could benefit from better returns. People with typical tracker mortgage deals will pay about £24 extra each month as a result of the latest rate rise.

Following the increase decision, Governor of the Bank of England Andrew Bailey said he is “much more hopeful” for the UK economy. “We were really a bit on a knife edge as to whether there would be a recession… but I’m a bit more optimistic now,” he added.

Second-hand strength boosts sales

Retail sales volumes rose by 1.2% in February, according to official figures released by the Office for National Statistics (ONS) on Friday, the biggest monthly gain since October 2022. Volumes have recovered to pre-pandemic levels, the ONS said, although remain 3.5% lower than a year ago.

The surprise boost resulted partly from a strong performance from discount and second-hand stores, such as auction houses and charity shops, amid ongoing cost-of-living difficulties. In total, non-food sales rose by 2.4% last month.

Food store sales rose too – by 0.9% in February compared to 0.1% in January. The ONS reported some anecdotal evidence, however, of reduced spending in restaurants and on takeaways because of cost-of-living pressures.

Darren Morgan, ONS Director of Economic Statistics, cautioned that, despite the positive data in February, “The broader picture remains more subdued, with retail sales showing little real growth, particularly over the last 18 months with price rises hitting consumer spending power.”

UK House Price Index

The latest UK House Price Index, released last Wednesday, presented a mixed picture, with average house prices rising by 6.3% in the year to January, down from 9.3% in December.

The average house price (£290,000) was £17,000 higher than a year previously. Across the UK, Northern Ireland (10.2%) and England (6.9%) have the biggest annual increases, ahead of Wales (5.8%) and Scotland (1.0%).

On a seasonally adjusted basis, however, the average house price decreased by 0.6% in January, following a decrease of 0.4% in December 2022.

Global financial stability at risk – IMF Chief

Speaking at a forum in Beijing on Sunday, Managing Director of the International Monetary Fund (IMF) Kristalina Georgieva said that risks to financial stability had increased after recent turbulence in the banking sector, although she reiterated that she felt actions by advanced economies had helped to calm market stress. She expects the world economy to expand by under 3% this year, as scarring from the pandemic, the war in Ukraine and monetary tightening continue to weigh. She concluded, “Fortunately, the news on the world economy is not all bad. We can see some ‘green shoots,’ including in China.”

New SNP leader

Humza Yousaf has been chosen as the new Scottish National Party (SNP) leader and Scotland’s First Minister by the party membership. Following the surprise resignation of Nicola Sturgeon last month, Mr Yousaf defeated Kate Forbes and Ash Regan in a contest in which 50,490 of the SNP’s 72,169 members cast a ballot.

The 37-year-old, previously Scotland’s Health Secretary, will become the first Muslim to lead a major UK political party. He had been the clear favourite throughout the contest and won with 52.1% of the votes after second preference votes.

Here to help

Financial advice is key, so please do not hesitate to get in contact with any questions or concerns you may have.

The value of investments can go down as well as up and you may not get back the full amount you invested. The past is not a guide to future performance and past performance may not necessarily be repeated.

Residential Property Review – March 2023

Spring Budget – ‘trailblazer’ deals announced

In the Spring Budget on 15 March, as part of the Levelling Up White Paper, Chancellor Jeremy Hunt announced ‘trailblazer’ deals giving new and deeper devolution powers to local leaders in the Greater Manchester and West Midlands Combined Authorities.

For the first time outside of London, local leaders will now be able to set the strategic direction over the Affordable Housing Programme (AHP) in their areas. These two combined authorities will receive powers in a two-staged approach, initially having partial powers which will ensure the current 2021-26 AHP, which is overseen by Homes England, can be delivered.

After 2026, for any new AHP funding, these combined authorities will gain more powers, including directing Homes England to identify and bring forward sites for housing and to partner with providers. Homes England will still play a role in administering the programme, unlike in London.

Cautious boost for buyer enquiries

A more stable picture is emerging for the rest of 2023, according to the latest UK Residential Survey from the Royal Institute of Chartered Surveyors (RICS), despite a generally downbeat overall trend last month.

The headline reading for new buyer enquiries rebounded to a net balance of -29% (on a seasonally adjusted basis), a significant leap from -45% in January. Although this is a tenth consecutive negative monthly reading, it is also the least negative result since July 2022.

The new sales indicator was also less negative in February (-26%) than it had been a month earlier (-36%). In contrast, the average time taken to complete sales rose again to almost 19 weeks.

Commenting on the latest survey, Tarrant Parsons, Senior Economist at RICS, said, “The housing market continues to adjust to the tighter lending climate, with stretched mortgage affordability still weighing heavily on activity. Going forward… the latest survey feedback shows tentative signs that the ongoing decline in buyer enquiries is now moderating.”

Soaring rents push people out of London

The flight of workers from London will cause businesses to suffer, industry bodies have warned, as soaring rents continue to drive people out of the capital.

Strong rental demand has pushed London rents 20% higher in the last year, according to Foxtons, with the lack of options in the capital now forcing renters to move further out of the city in order to find a suitable place to live. In the same period, average house prices have fallen by 0.9%, according to Halifax, highlighting the difficulties renters have faced.

In trying economic conditions, more than half of landlords still plan to raise rents further to absorb extra costs. Some 63% of renters expressed concern or strong concern about how rising interest rates could affect their monthly rental payments in a recent survey by Finbri.

It is important to take professional advice before making any decision relating to your personal finances. Information within this document is based on our current understanding and can be subject to change without notice and the accuracy and completeness of the information cannot be guaranteed. It does not provide individual tailored investment advice and is for guidance only. Some rules may vary in different parts of the UK. We cannot assume legal liability for any errors or omissions it might contain. Levels and bases of, and reliefs from, taxation are those currently applying or proposed and are subject to change; their value depends on the individual circumstances of the investor. No part of this document may be reproduced in any manner without prior permission.

Commercial Property Market Review – March 2023

Spring Budget – Investment Zones announced

On 15 March, Jeremy Hunt delivered his “Budget for Growth” focusing on four pillars ‘Everywhere, Enterprise, Employment and Education.’

Encompassed within the ‘Everywhere’ pillar, Mr Hunt spoke about the government’s plans for ‘Levelling Up,’ including the launch of 12 new Investment Zones or “potential Canary Wharfs”. For each of the eight zones in England, £80m of support over five years will be available for skills, infrastructure and tax reliefs.The locations identified in England are East Midlands, Greater Manchester, Liverpool City Region, the North East, South Yorkshire, Tees Valley, West Midlands, and West Yorkshire. 

The remaining four Investment Zones will be located across Wales, Northern Ireland and Scotland (at least one zone in each nation) with the incentives for these to be agreed with the relevant Devolved Administrations. 

The tax incentives correspond to those currently offered to Freeports, including:

  • Stamp Duty Land Tax relief for commercial property
  • Business rates relief
  • Enhanced capital allowances – deduction for certain qualifying expenditure on plant and machinery
  • Enhanced structures and buildings allowance
  • Relief against the cost of Employer’s National Insurance contributions for new employees.

Capital values decline in February

UK commercial property performance measured by the latest CBRE Monthly Index for February 2023, highlights that capital values fell by 0.5%in the month, with rental growth registering a very small gain of 0.2% and total returns flat at 0.0%.

All three sectors registered declines in capital values throughout the month, with industrial, office and retail falling 0.6%, 0.6% and 0.3% respectively. Focusing on the industrial sector, South East  located industrials experienced a higher decline than those in the rest of the UK. Capital value falls in the office sector were primarily driven by offices located outside of the capital, with values in central London falling 0.1% and those in the rest of the UK and outer London/M25 falling 1.2% and 1.4% respectively.

Industrial and logistics sector – a ‘significant amount of investment capital is sitting on the fence’

Take up of industrial and logistics space in 2023, according to Colliers recent UK Market Pulse, is predicted to fall to around 30m sq. ft, down from 36.9m sq. ft. in 2022. Colliers are attributing this predicted contraction to occupier cost pressures and depressed retail spending.

Other key findings from the report highlight an expectation that online spending will remain elevated when compared with pre-pandemic levels, positive news for the sector. With supply for industrial and logistics remaining low, predictions suggest an increase during the year, with a’ healthy pipeline under construction and some more space being returned to the market.’

A ‘significant amount of investment capital is sitting on the fence,’ according to the report. It is a possibility that values will be pushed higher in H2 2023 as commercial tension increases.

It is important to take professional advice before making any decision relating to your personal finances. Information within this document is based on our current understanding and can be subject to change without notice and the accuracy and completeness of the information cannot be guaranteed. It does not provide individual tailored investment advice and is for guidance only. Some rules may vary in different parts of the UK. We cannot assume legal liability for any errors or omissions it might contain. Levels and bases of, and reliefs from, taxation are those currently applying or proposed and are subject to change; their value depends on the individual circumstances of the investor. No part of this document may be reproduced in any manner without prior permission.

Family Finances: get talking

New research1 suggests young adults and their parents are becoming increasingly comfortable talking about money matters, which should ensure future generations are much better equipped to tackle their financial affairs. 

Breaking the taboo 

Historically, intergenerational discussions about finances have too often been viewed as a no-go area, but the research suggests UK families are beginning to open up, with young adults significantly more likely to have talked to their parents about the issue than previous generations. In total, three out of four 18 to 24-year-olds said they spoke with their parents about money matters when they were growing up; this compares to just four in ten over-65s and half of 55 to 64-year-olds. 

Reaping the rewards 

Experts have long advocated the benefits of families talking openly about financial affairs. Parents who do so are more likely to ensure their children are better prepared to deal with money matters when they reach adulthood, whether in relation to day-to-day spending issues or the need to develop longer-term savings habits. 

Young wealth owners 

The need for young adults to be financially savvy has perhaps never been greater, with a growing proportion of this generation now owning a considerable amount of wealth. Indeed, estimates2 suggest the number of UK Millennial and Generation Z millionaires has doubled over the past year and now stands at a record high of 2,000. 

Keep talking 

An increasing desire for families to discuss financial affairs is definitely a positive trend which should help the next generation realise the value of money and establish good financial habits at a young age. So, keep the conversations going to help secure your children’s financial futures. 

1Royal London, 2022 

2Bowmore, 2022 

The value of investments and income from them may go down. You may not get back the original amount invested. 

Renters tune in – income protection

The number of households renting privately in the UK increased by 63% in the decade to 20171, reaching an estimated total of 4.5 million. As the rising cost of living continues to cause difficulties for many, the importance of protection becomes increasingly apparent. 

Safety net 

Tenants in the private rental sector generally have lower financial resilience than homeowners; recent research2 revealed that 14% of private renters have no savings at all, compared with 8% of mortgage holders. 

Despite this, almost three quarters of renters don’t hold any protection products3. Missing out on the crucial safety net that protection provides is part of the reason more than twice as many renters (29%) as mortgage holders (14%) would expect to apply for state benefits if they were unable to work. 

What can I do? 

More than two thirds of private renters are worried about losing their income if they could not work due to an illness or injury. Thankfully, there is a remedy for these fears. 

Income protection is a financial safety net that provides you with a tax-free income if you are unable to work. If accident or injury are keeping you away from your salary, income protection steps in at the end of your chosen deferred period to help make sure you and your loved ones don’t suffer undue financial hardship. 

Tough times 

In the current turbulent economic environment, the value of income protection is clearer than ever. As rising prices diminish savings pots, private renters become more vulnerable to financial shocks and missing rent payments. Having the right protection in place for your unique needs can help provide valuable peace of mind. 

1Office for National Statistics, 2022  

2FT Adviser, 2022  

3Financial Conduct Authority, 2022 

As a mortgage is secured against your home or property, it could be repossessed if you do not keep up mortgage repayments. 

News in Review

 “Today we build for the future”

Jeremy Hunt delivered his first Budget last Wednesday, billing it as “A Budget for Growth.” The Chancellor kicked off his statement with a commentary of the latest economic projections from the Office for Budget Responsibility (OBR).

Firstly, focusing on inflation, the OBR data suggests that inflation will fall from an average rate of 10.7% in Q4 2022 to 2.9% by the end of 2023. This fall can partly be attributed to a three-month extension of the Energy Price Guarantee (EPG), announced earlier on 15 March. The EPG caps typical energy bills at £2,500, and will be kept at this level throughout April, May and June. Rishi Sunak spoke of the decision to retain the EPG, “Continuing to hold down energy bills is part of our plan to help hardworking families with the cost of living and halve inflation this year.”

Turning to economic growth expectations, the Chancellor said the OBR believe the UK economy will avoid a technical recession in 2023. Estimates show a 0.2% contraction this year, followed by growth of 1.8% next year and 2.5% in 2025, before moderating towards its medium-term potential growth rate of 1.75% by 2028. The expected shrinkage of 0.2% this year represents a considerable upgrade from last autumn’s forecast of a 1.4% contraction.

The predicted improvement in economic prospects also results in a relatively brighter outlook for UK public finances. The Chancellor revealed that the government was on track to meet both of its self-imposed fiscal rules which state that underlying debt must be falling as a percentage of GDP by the fifth year of the forecast and that public sector borrowing must be below 3% of GDP over the same period. Mr Hunt said the forecast showed the first rule would be met with “a buffer of £6.5bn”, although the OBR did say this was the smallest amount of headroom any Chancellor has set aside against his primary fiscal target since the independent forecaster was established in 2010.

Mr Hunt added, “Today we build for the future with inflation down, debt falling and growth up. The declinists are wrong and the optimists are right. We stick to the plan because the plan is working.”

Four pillars

The strategy for growth, centres around four pillars, ‘Everywhere, Enterprise, Employment and Education.’ Key announcements included:

  • ‘Everywhere’ involves plans for ‘Levelling Up,’ including the launch of 12 new Investment Zones, with £80m of support per zone available for skills, infrastructure and tax reliefs
  • ‘Enterprise’ encompasses providing the right conditions for businesses to succeed. One key announcement is a ‘full expensing’ policy, applicable from 1 April 2023 until 31 March 2026 to allow investment in IT, plant or machinery to be deducted in full and immediately from taxable profits
  • ‘Employment’ refers to a suite of measures to “remove the barriers that stop people who want to from working”. One key focus is to entice mature people back to work, with the expansion of the DWP’s ‘midlife’ MOT scheme, a new ‘Returnerships’ scheme making existing skills programmes more accessible to older workers and a pension tax relief overhaul to encourage over-50s to extend their working lives
  • ‘Education’ involves reformation of the childcare system, with proposals offering 30 free hours of childcare each week to pre-school children aged nine months or above, in English households where both parents work. A phased approach and eligibility criteria apply. In addition, funding for schools and local authorities to increase availability of wraparound care is being made available.

Markets

Challenging market conditions continued this week, following the collapse and subsequent bail out of Silicon Valley Bank. Markets are processing the forced takeover of Credit Suisse by rival UBS for £2.6bn. An official spokesperson for Rishi Sunak sought to reassure investors following the emergency rescue of the Swiss banking giant, saying, “Obviously, it is good that a resolution has seen secured. As the Bank of England has said, we believe the UK banking system remains safe and well capitalised. We have a strong regulatory system and we have taken a number of steps over the past 15 years, together with the Bank of England, to strengthen that system.”

Here to help

Financial advice is key, so please do not hesitate to get in contact with any questions or concerns you may have.

The value of investments can go down as well as up and you may not get back the full amount you invested. The past is not a guide to future performance and past performance may not necessarily be repeated.

All details are correct at time of writing (22 March 2023)

Spring Budget 2023

“A Budget for Growth”

Chancellor of the Exchequer, Jeremy Hunt, delivered his first Spring Budget on 15 March declaring it was “A Budget for Growth.” The fiscal update included a range of new measures, some of which had been widely trailed prior to Budget day, in order to achieve growth “by removing obstacles that stop businesses investing; by tackling labour shortages that stop them recruiting; by breaking down barriers that stop people working; and by harnessing British ingenuity to make us a science and technology superpower.”

OBR forecasts

The Chancellor began his statement by unveiling the latest economic projections produced by the Office for Budget Responsibility (OBR) which he said showed the UK would meet the Prime Minister’s priorities to “halve inflation, reduce debt and get the economy growing.” In relation to the first priority, Mr Hunt said the latest OBR figures suggest inflation will fall from an average rate of 10.7% in the final quarter of last year to 2.9% by the end of 2023. This sharp decline is partly due to some of the Chancellor’s Budget measures, including the three-month extension to the household Energy Price Guarantee (EPG), which the government had confirmed earlier in the day.

Mr Hunt also said the OBR forecast suggests the UK economy will now avoid a technical recession this year (defined as two consecutive quarters of economic decline) and then expand in each of the remaining years of the five-year forecast period. According to the updated figures, the economy is expected to shrink by 0.2% this year, a significant upgrade from last autumn’s forecast of a 1.4% contraction, with growth then predicted to hit 1.8% in 2024 and 2.5% in 2025, before easing back towards its medium-term potential growth rate of 1.75% by 2028.

The Chancellor’s growth strategy focuses on the four pillars ‘Everywhere, Enterprise, Employment and Education,’ as previously outlined in his Bloomberg speech in January.

Everywhere

Mr Hunt spoke about the government’s plans for ‘Levelling Up,’ including the launch of 12 new Investment Zones. Across these “12 potential Canary Wharfs,” £80m of support per zone will be available for skills, infrastructure and tax reliefs.Mr Hunt also mentioned specific projects selected for local investment, including:

  • £200m for local regeneration projects and £400m for new Levelling Up Partnerships across England
  • £8.8bn over the next five-year funding period for the City Region Sustainable Transport Settlements
  • Up to £8.6m for the Edinburgh Festivals, as well as £1.5m for the repair of Cloddach Bridge, near Elgin, and £20m for the restoration of the Holyhead Breakwater in Anglesey
  • Up to £3m to extend the Tackling Paramilitarism Programme in Northern Ireland.

Enterprise

To provide the right conditions for businesses to succeed:

  • A ‘full expensing’ policy will apply from 1 April 2023 until 31 March 2026 to allow investment in IT, plant or machinery to be deducted in full and immediately from taxable profits
  • An increased rate of relief for loss-making Research and Development (R&D)-intensive small and medium size enterprises (SMEs) – eligible companies will receive a £27 credit from HMRC for every £100 of R&D investment
  • An extension of higher reliefs for theatres, orchestras, museums and galleries for two further years
  • The Medicines and Healthcare products Regulatory Agency (MHRA) will receive £10m extra funding over two years
  • All of the recommendations from Sir Patrick Vallance’s review of pro-innovation regulation of digital technologies are accepted
  • £900m of funding for AI Research Resource and an exascale computer as well as a commitment to £2.5bn ten-year quantum research and innovation programme through the government’s new Quantum Strategy
  • Innovation Accelerators programme – £100m funding for 26 transformative R&D projects
  • AI Challenge Prize – £1 million prize every year for the next ten years to researchers that drive progress in critical areas of AI.

Employment

The Chancellor turned next to Employment, with a suite of new measures to “remove the barriers that stop people who want to from working.” To achieve this, he announced:

Mature workers

  • The expansion of the DWP’s ‘midlife’ MOT scheme, aiming to reach up to 40,000 individuals per year (up from the current 8,000)
  • New ‘Returnerships’ scheme to make existing skills programmes more accessible to older workers and help them upskill and retrain
  • A pension tax relief overhaul; see details in Personal Taxation and Pensions section.

People with long-term illnesses and disabilities

  • A white paper on disability benefits reform
  • The abolition of the Work Capability Assessment for disability benefits claimants
  • A new voluntary employment scheme for people with disabilities
  • £406m to increase support for working adults with mental health, musculoskeletal and cardiovascular problems.

Welfare recipients

  • An increase to the Administrative Earnings Threshold
  • A stronger sanctions regime for Universal Credit claimants.

Care leavers

  • A 50% increase in funding for the Staying Close programme
  • An increase in the Qualifying Care Relief threshold to £18,140 per year plus £375 to £450 per person cared for per week for 2023/24 and these thresholds will then be index-linked, representing a tax cut worth approximately £450 per year on average.

Education

Mr Hunt then turned to Education, stating that he wants to reform the childcare system, currently “one of the most expensive systems in the world.”

His new proposal will offer 30 free hours of childcare each week to pre-school-age children aged nine months or above in English households where both parents work. It will be phased in on the following timeline:

  • April 2024 – eligible two-year-olds will receive 15 hours of free childcare per week
  • September 2024 – qualifying children aged nine months to two years will receive 15 hours
  • September 2025 – eligible children aged nine months to three years will receive 30 hours.

Also, schools and local authorities will be funded to increase availability of wraparound care, to enable parents of school-age children to drop them off between 8am and 6pm. 

To tackle the problem of unaffordable upfront costs, Mr Hunt also announced support for the 700,000 families on Universal Credit. Another major change involves each staff member in England being able to look after five two-year-olds instead of four, as is already the case in Scotland.

Personal Taxation and Pensions

To encourage over-50s to extend their working lives, the government is increasing tax relief limits on pension contributions and pots – the Annual Allowance will be raised from £40,000 to £60,000 from April 2023; the Lifetime Allowance (LTA) charge will be removed from April 2023, and the LTA will be abolished from April 2024. The maximum amount that can be accessed tax free (Pension Commencement Lump Sum) will be frozen at its current level of £268,275 (25% of current LTA). From April, the minimum Tapered Annual Allowance (TAA) and the Money Purchase Annual Allowance (MPAA) will increase from £4,000 to £10,000 and the adjusted income threshold for the TAA will also rise, from £240,000 to £260,000.

As a reminder, the following changes were previously announced in the Autumn Statement 2022:

  • The Income Tax additional rate threshold (ART) at which 45p becomes payable is lowered from £150,000 to £125,140 from April 2023. The ART for non-savings and non-dividend income will apply to taxpayers in England, Wales and Northern Ireland
  • The Dividend Allowance reduces from £2,000 to £1,000 from April 2023 and to £500 from April 2024
  • The annual Capital Gains Tax exemption reduces from £12,300 to £6,000 from April 2023 and to £3,000 from April 2024
  • The Stamp Duty Land Tax nil-rate threshold for England and Northern Ireland is £250,000 for all purchasers and £425,000 for first-time buyers, remaining in place until 31 March 2025.

In addition:

  • The Income Tax Personal Allowance and higher rate threshold remain at £12,570 and £50,270 respectively until April 2028 (rates and thresholds may differ for taxpayers in parts of the UK where Income Tax is devolved)
  • The basic State Pension will increase in April 2023 from £141.85 per week to £156.20 per week, while the full new State Pension will rise from £185.15 to £203.85 per week. The standard minimum income guarantee in Pension Credit will also increase in line with inflation from April 2023 (rather than in line with average earnings growth)
  • Inheritance Tax (IHT) nil-rate bands remain at £325,000 nil-rate band, £175,000 residence nil-rate band, with taper starting at £2m – fixed at these levels until April 2028
  • National Insurance contributions (NICs) Upper Earnings Limit (UEL) and Upper Profits Limit (UPL) are frozen until April 2028
  • The ISA (Individual Savings Account) allowance remains at £20,000 and the JISA (Junior Individual Savings Account) allowance and Child Trust Fund annual subscription limits remain at £9,000.

Other key points

  • Potholes Fund – an extra £200m for local road maintenance in England in 2023/24
  • Alcohol Duty – rates frozen until August 2023 then uprated by RPI, Draught Relief increased to 9.2% for beer and cider and 23% for wine from 1 August 2023
  • Fuel duty rates – maintaining the rates of fuel duty at the current levels for an additional 12 months
  • Defence spending – an extra £4.95bn for defence over 2023/24 and 2024/25
  • Support for veterans – an additional £33m over the next three years
  • Swimming Pool Support Fund – over £60m for public swimming pools across England
  • Support for charities and community organisations – £100m (England)
  • Plastic Packaging Tax rate – uprated in line with CPI from 1 April 2023
  • Launching ‘Great British Nuclear’ – supporting new nuclear builds, £20bn available for Carbon Capture, Utilisation and Storage (CCUS), and extending the Climate Change Agreement scheme for a further two years
  • Devolved administrations – receiving an additional £630m through the Barnett formula over 2023/24 and 2024/25 (Scottish Government £320m, Welsh Government £180m and Northern Ireland Executive £130m).

Closing comments

Jeremy Hunt signed off his announcement saying, “Today we build for the future with inflation down, debt falling and growth up. The declinists are wrong and the optimists are right. We stick to the plan because the plan is working.”

It is important to take professional advice before making any decision relating to your personal finances. Information within this document is based on our current understanding of taxation and can be subject to change in future. It does not provide individual tailored investment advice and is for guidance only. Some rules may vary in different parts of the UK; please ask for details. We cannot assume legal liability for any errors or omissions it might contain. Levels and bases of, and reliefs from, taxation are those currently applying or proposed and are subject to change; their value depends on individual circumstances.

All details are believed to be correct at the time of writing (15 March 2023)