Published: 16 March 2023
By Suzanne Evans, Director, Political Insight
Chancellor Jeremy Hunt delivered his Spring Budget yesterday, announcing that the UK will now not enter recession this year, and contract by only 0.2%, having projected a 1.4% contraction in his Autumn Statement in November. “The British economy is "proving the doubters wrong," he said. He also cited Office for Budget responsibility (OBR) forecasts that inflation will now fall from 10.7% at the end of 2022 to 2.9% by the end of 2023. It then forecasts GDP to grow by 1.8% in 2024 and 2.5% in 2025, although that rate will ease to 2.1% and 1.9% in 2026 and 2027 respectively.
The main Budget headlines:
· Confirmation that Corporation Tax will go up from 19% to 25% for companies with over £250,000 in profits
· The abolition of the lifetime pension allowance and a 50% increase in the annual tax free pension allowance to £60,000 a year.
· An extension of the Energy Price Guarantee until the end of June, with average energy bills capped at £2,500 per year
· Customers using prepayment meters will no longer be charged extra but will be charged “in line with comparable with direct debit charges”
· 12 new ‘investments zones’ each able to access £80m in funding over 5 years
· Defence spending will increase by £11bn over the next 5 years
· Nuclear power will be classed as environmentally sustainable, giving it access to same incentives as renewable energy
· £20bn allocated for the development of Carbon Capture Usage and Storage to help offset emissions with oil and gas projects
· “Full expensing” for qualifying spend on plant and machinery for the next three years
· 30 hours free childcare extended to children aged from 9 months to 3 years, to be phased in by September 2025
· A £600 incentive payment for childminders who sign up to the profession, rising to £1,200 for those who join through an agency
· Fuel duty to be frozen at 5p per litre for another year
· A ‘Brexit pub guarantee’ in the form of an increase in ‘draught relief,’ meaning beer and cider in pubs will be 11p cheaper than in supermarkets
· Alcohol duty, now frozen until 1st August, will thereafter go up in line with inflation – Hunt said previously alcohol duty would go up in February
· A packet of 20 cigarettes goes up by £1.89
· Abolition of the work capability assessment for disabled people: a new programme, Universal Support, will provide funds to help them find appropriate jobs
· An additional £406m for mental and physical health
· £10m in extra funding for drugs regulator the MHRA
· £63m in funding for public swimming pools
No announcements were made on a price floor for the Energy Profits Levy (windfall tax). Following the Budget, the pound rose 1.2% against the at €1.1461 on the prediction by the (OBR) forecast that inflation will fall to 2.9% by the end of this year, however it fell 0.8% against the dollar.
Labour leader Sir Keir Starmer criticised the Budget, saying the multibillion-pound pensions’ tax break to stop an estimated 15,000 high earners leaving the workforce was “a huge giveaway to some of the very wealthiest”. The move was the "the wrong priority, at the wrong time, for the wrong people," the party said, as it would mean that people with more than £1.4m in their pension pot would pay a total of around £150,000 less in tax, at a time when basic rate taxpayers are facing higher tax bills. Economists at the Resolution Foundation also warned the pension changes may actually cause some workers to retire early or use “their now uncapped pensions saving to avoid inheritance tax”. CEO Torsten Bell said the measures are “hugely regressive and wasteful”, adding: “It’s a big victory for NHS consultants but poor value for money for Britain,” in a reference to the change, one purpose of which was to prevent NHS doctors retiring to help clear the NHS backlog caused by covid lockdowns.
Among the forecasts published yesterday by the Office for Budget Responsibility (OBR) was a prediction that UK house prices will fall by 10% from their previous peak in the fourth quarter of 2022. The fall will be as a result of low consumer confidence, interest rate rises and the cost of living squeeze, the OBR said.
A dramatic 40% plunge in Swiss bank Credit Suisse’s share price sent world markets tumbling yesterday, amid renewed fears that a full-blown worldwide banking crisis might be brewing. The stock has now lost 75% of its value since March 2022 and 90% over the last five years following a series of scandals. The Swiss National Bank (SNB) has overnight stepped in to shore up the ailing bank, offering a CHF50bn loan which SNB has accepted. The renewed crisis surrounding Credit Suisse, when its main investor said no more money was available due to regulator issues, following as it does hot on the heels of the collapse of US bank SVB, led to the worst day of the year for the FTSE 100.
Oil prices also plunged by nearly 5% yesterday, settling at the lowest levels in more than a year on concerns that a crisis of confidence in the banking sector could trigger a global recession and cut demand.
The collapse of Silicon Valley Bank could signal the “dominoes are starting to fall” after an abrupt end to the era of low interest rates and cheap money, the boss of the world’s biggest asset manager BlackRock has warned. City A.M. says that in his annual letter to investors yesterday, Larry Fink said a series of aggressive rate hikes to tame rampant inflation in the past year had “exposed cracks in the financial system” and “something else had to give”. He described the current financial situation as the "price of easy money," adding that SVB’s failure had been down to a “classic asset-liability mismatch” and may be a harbinger of things to come. However he added that it was “too early to know how widespread the damage is”.
Kate Nicholls, UKHospitality CEO says her members in London are continuing to suffer because of ongoing tube strikes, which are grinding the capital to a halt this week. The trade body UKHospitality says hospitality businesses are expected to lose as much as £600m. “Our pubs, bars, coffee shops, hotels and restaurants, to name a few, continue to suffer as collateral damage, with total lost sales since the start of the dispute last year now expected to reach more than £3bn,” she said.
Gatwick Airport has returned to profit and says it is “cautiously optimistic” about a full recovery post-covid travel restrictions as passenger demand levels reach 70% of what they were at the beginning of 2020. London’s second busiest airport reported more than £400m aeronautical income, with £159m coming in through retail, and £102m in parking income alone. It returned a profit of £196.5m in 2022, after losing more than £830m from 2020 and 2021 due to the suppression of air travel.
Despite an increase in revenue to £1.9bn, and a gross profit rise of 30% of £643m, up from 495m in 2021 shares in Deliveroo have fallen sharply again following its decision to cut around 350 job roles. CEO Will Shu says this is because the macroeconomic outlook for the company “remains uncertain” because of a decline in take away sales as demand begins to normalise, post-stay-at-home lockdowns, and because, he said, the current cost of living crisis means “consumers’ appetite to order takeaways is low.”
Home REIT has extended its deadline for a takeover, saying discussions with potential suitor Bluestar “remain ongoing”. Yesterday, the social housing investor said it was considering a change of investment advisor rather than a sale. A series of scandals have been unveiled at the FTSE 250 trust in the past few months: it has been revealed that 35% of its rental income is in jeopardy, and that its property portfolio needs a cash injection of between £15-20m to refurbish. Previously, Home REIT denied these problems when a damning short seller report by Viceroy Research first raised concerns about its financial health in November. Trading in Home REIT shares has been suspended since the start of the year after the firm failed to publish results on time, and a forensic accountant has been brought in to investigate allegations of wrongdoing.
Savills' pre-tax profits have slumped 16% to £153.9m in 2022, down from £183.1million the previous year. The estate agent says it expects tough market conditions to continue until improvement is shown in the second half of the year.
FTSE 250 gold miner Centamin says its full-year profits have risen 11% to $171m on last year, driven by a strong rise in production.
The John Lewis Partnership has hired its first CEO, retail veteran Nish Kankiwala, who will take up the role on 27th March. He is and will remain a member of the Partnership Board. Nish is the former CEO of Hovis and has held senior roles at Burger King and PepsiCo. Meanwhile, the employee-owned company said it made a loss of £234m in the 12 months to 28th January, against a loss of £27m the previous year. The group said the losses were largely due to property write downs. The firm will not pay its staff a bonus this year, for only the second time since 1953.
Trustees of the Thomas Cook pension scheme are reportedly plotting an £850m pensions deal with Aviva that will guarantee retirement payments to thousands of former workers at the collapsed tour operator, according to Sky News. Thomas Cook's pension schemes are thought to have had roughly 14,000 members at the time of its demise.
The CEO of Vodafone Business will step down at end of this year. Vinod Kumar will continue to run the business until 31st December before pursuing a portfolio career.
Legal and General CEO Sir Nigel Wilson has seen his total pay since he took on the job rise to £40.8m, after taking home £4m last year, the Daily Mail reports. Wilson announced plans to retire in January and has overseen a steady performance since he took the helm in 2012, the newspaper says. Shares in the insurance and asset management giant are up 90% since he took over, compared with an increase of 36 per cent for the FTSE 100 index.
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