The UK strategic position has improved, a little
The OBR suggests that the economic position of the UK is marginally better than was envisaged in the Autumn Statement of November 2022.
Inflation pressures appear less severe and the UK is not now expected to fall into recession in 2023 – although it may come very close.
Public finances are a little stronger than previously expected and the Chancellor has chosen to invest about two-thirds of this fiscal “windfall” in policy measures (EFO para 1.13).
In his speech, the Chancellor emphasised the need for continued caution and vigilance – there will be no big tax “giveaway” for most citizens.
The Budget builds on established themes, focusing on the need to address known structural weaknesses (eg: low labour market participation) and to build for the future (eg: investing in technology and infrastructure).
Support for cost-of-living
OBR believes that “all items” inflation peaked in late 2022 and will slow over 2023 (EFO chart 2.3), although it will not turn negative before 2028. Food price inflation will also weaken, but perhaps at a lower rate.
However, disposable income will continue to contract for at least the next year (EFO paragraph 2.46), due to taxation, inflation and weakening wage growth. Household finances will therefore remain under pressure.
The Budget includes some help to address cost-of-living pressures:
- Provision of free childcare for working parents will be greatly extended, in order to help parents to remain part of the workforce (Budget paragraph 4.163 to 4.166)
- The Energy Price Guarantee will be held at £2,500 until July, before tapering to £3,000 – rather than tapering in April as planned (Budget paragraph 4.13)
- Households using pre-payment meters will no longer pay a penalty for doing so and prices will be aligned with direct debit customers (Budget paragraph 4.15)
- Motor fuel duty will be held at the current level for another year (Budget paragraph 4.23)
- Special Draft Relief tax measures for beer will be increased, saving pub drinkers 11p per pint
Other tax changes for individuals
The changes laid out above are clearly helpful, addressing some major costs for UK households, but planned income tax increases remain in-place and other changes may offset these benefits:
- Alcohol and tobacco duties will rise (Budget paragraphs 4.27 and 4.82)
- Vehicle excise duty for private vehicles will rise in line with Retail Price Inflation (RPI) (Budget paragraph 4.75)
Increasing labour participation
The government is aware that a limited labour pool poses an economic hazard, constricting future growth through lack of economic capacity.
The Budget therefore contains broad packages of measures intended to increase labour participation amongst specified groups, specifically:
- The long term sick
- Long term unemployed
- Workers over 50, especially in the NHS – reform of tax reliefs on pensions is part of this package
- Parents of young children
Grocery businesses have struggled with shortage of people for a very long time and they may welcome these measures, although these measure are all aimed at UK residents.
IGD conversations with industry colleagues suggest that many continue to look to overseas workers to fill gaps in the grocery workforce.
The Chancellor said nothing about policy changes which might make it easier to recruit from abroad. This issue may be tackled by other departments, especially the Home Office.
Encouraging industrial development
Corporation tax will rise as planned in April 2023, moving from 19% to 25% (Budget paragraph 3.68) – this move was a controversial one, but seen as necessary help rebuild government finances.
Certain “green” taxes on businesses will also rise, including Landfill Tax and the Plastic Packaging Tax (Budget paragraph 4.70 and 4.71).
However, in order to help encourage investment extensive tax deductions will be made available for investment and R&D expenditure (Budget paragraphs 3.71 and 3.75)
A range of policy measures will support strategically-important business sectors. These are listed as (Budget paragraph 3.79):
- Green industries
- Digital technology
- Life sciences
- Creative Industries
- Advanced manufacturing
There is little content aimed at the food supply chain specifically, which seems puzzling given the events of the last year or so.
However, policy to support advanced manufacturing may benefit grocery suppliers. We await more detail on this.
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