Budget 2023.

Today’s (Wednesday 15 March 2023) Spring Budget was largely relegated to a side-show by equity markets thanks to the collapse of Silicon Valley Bank in the US (please see here) – in fact, even yesterday’s US CPI inflation reading wasn’t the be-all and end-all data reading it normally is as financial markets remain on the edge

Right off the bat the central message from Jeremy Hunt, the Chancellor of the Exchequer, was clear:  there was no money for tax cuts.

However, given that the Office for Budget Responsibility (OBR) was far too pessimistic last November in its economic forecasts, as not only has the UK economy defied their expectations and avoided entering a recession in Q4 2022, but also GDP for 2023 is now expected to contract by just 0.2%, versus 1.4% previously, Jeremy Hunt does have some wiggle room – allowing him to tinker around the edges with a sprinkling of support for households and business to help offset the cost of living crisis.

For example, the Energy Price Guarantee which prevents a ‘typical’ electricity and gas bill exceeding £2,500 was extended for an additional three months versus the previously announced increase to £3,000.  Likewise, and copying the playbook of previous Chancellors, he waived the planned rise in fuel duty.  Both these measures could help boost our discretionary spending – potentially benefiting retail, travel and leisure business.

For businesses, Jeremy Hunt announced a new full-expensing regime to replace the capital allowances super-deduction which expires on 1 April 2023 with the aim of incentivising investment.  However, it was also confirmed that the planned increase in corporation tax from 19% to 25% was going ahead – which could discourage investment.  For example, the pharmaceutical company, AstraZeneca, recently announced that its planned new factory will now be built in Ireland (where corporation tax is just 15%) instead of Cheshire.

However, the biggest benefit to the UK economy from today’s statement will probably come from the help with childcare costs and the abolishment of the lifetime allowance (LTA).  This should help reverse the recent erosion of progress in getting more women into the workforce and help persuade older (aka ‘more experienced’) workers from retiring early, and will hopefully help boost our economic output by reducing the current labour shortage that has forced many companies to reduce output.

Interesting many of today’s announcements will help ensure the inflation rate will, as we have previously argued, fall sharply this year suggesting UK interest rates are near their peak.

In summary, while Jeremy Hunt was more entertaining to watch than he has been previously (even having a joke at Rishi Sunak’s expense over the heating of swimming pools), the fact that the Spring Statement was light on meaningful actions meant that, on the whole for the UK equity market, it was unfortunately nothing more than a passing irrelevance.  In fact, Jeremey Hunt referred to his ‘E’s’ (enterprise, education, employment and everywhere) so often, that we thought he was going to singing the 1992 song ‘Ebeneezer Goode’ (eezer good) by The Shamen!

Although the UK equity market is looking pretty grim today, as the FTSE-100 is currently down just over 200 points (or 2.75%), this has nothing to do with today’s Spring Statement, but has been driven by broader issues including geopolitical concerns following yesterday’s Russian-US collision; concerns over banks such as the Swiss bank, Credit Suisse; and the prospects for global interest rates.

Investment Management Team

Links to websites external to those of Wealth at Work Limited (also referred to here as 'we', 'us', 'our' 'ours') will usually contain some content that is not written by us and over which we have no authority and which we do not endorse. Any hyperlinks or references to third party websites are provided for your convenience only. Therefore please be aware that we do not accept responsibility for the content of any third party site(s) except content that is specifically attributed to us or our employees and where we are the authors of such content. Further, we accept no responsibility for any malicious codes (or their consequences) of external sites. Nor do we endorse any organisation or publication to which we link and make no representations about them.