Budget 2023 - Initial Reaction

Today, Wednesday 15 March 2023, Chancellor Jeremy Hunt MP delivered his 'Growth Budget' Spring Statement.


This review highlights the measures impacting the built environment as well as the wider property, construction and infrastructure sectors. 

These are largely drawn from the Budget ‘Red Book’ and will be augmented, in time, with explanations and commentary on draft legislation - as further details become available.

Positioned by The Chancellor as a Budget for growth and investment, there have been a mix of policy announcements around Investment Zones and Levelling Up and Regeneration initiatives across the UK (and particularly Northern England) – potentially pandering to the ‘blue wall’ constituencies perhaps. 

As well as replacement of the successful 130% Super deduction and 50% Special Rate Allowances, with a new three year ‘fully expensed’ 100% relief (from April 2023) on Plant & Machinery Allowances (PMAs) and retaining a 50% First Year Allowance (FYA) on Integral Features Allowances (IFAs) – accelerating the relief for companies within the charge to Corporation Tax.  Sadly, many businesses that operate as partnerships or individuals (such as farming, medical or dental practices etc., as well as those across professional services) – will not benefit from these enhanced tax savings as they do not appear to be available against Income Tax.

Below we highlighted the key changes that affect capital allowances (download our full reaction right for all built environment announcements):

3.68 A competitive corporate tax system is a vital lever to encourage enterprise and investment. To get debt falling, at Spring Budget 2021, the government took the difficult decision to increase the headline rate of Corporation Tax to 25% from April 2023.

3.70 The reliefs and allowances within the corporate tax system are an important factor in business investment decisions.  The decision in the autumn to permanently set the Annual Investment Allowance at £1 million, means 99% of businesses receive 100% tax relief on their qualifying plant and machinery investments in the year of investment.

3.71 In 2021, the government introduced the super-deduction to go further to encourage companies to invest.  This was due to end on 31 March 2023.  The government is now introducing full expensing, a 100% First Year Allowance, from 1 April 2023 until 31 March 2026.  This means that companies across the UK will be able to write off the full cost of qualifying main rate plant and machinery investment in the year of investment.  Companies investing in special rate (including long life) assets will also benefit from a 50% first-year allowance during this period. Moving to full expensing means the UK’s plant and machinery allowances will be joint first in the OECD in Net Present Value terms, instead of dropping to 33rd.

4.45 Capital allowances: Full expensing – From 1 April 2023 until 31 March 2026 investments made by companies in qualifying plant and machinery will qualify for a 100% first-year allowance for main rate assets.  This means companies across the UK will be able to write off the full cost in the year of investment, known as full expensing.  Companies investing in special rate (including long life) assets will also benefit from a 50% first-year allowance in the year of investment.  Expenditure on plant or machinery for leasing is excluded from first -year capital allowances due to longstanding concerns about abuse and wide scope for error.  The government will work with industry to identify possible policy solutions that appropriately mitigate these risks.

The HMRC has confirmed within its Full Expensing (FE) Fact Sheet that the standard exclusions to FYAs under Section 46 CAA01 will apply, most notably the exclusions of expenditure on cars, and plant and machinery for leasing except where it is under an excluded lease of background plant or machinery for a building.  Expenditure must be incurred by a company within the charge to corporation tax and the plant or machinery must be unused and not second-hand.

4.123 Levelling Up Partnerships – The Spring Budget announces the rollout of new Levelling Up Partnerships, providing over £400 million and bringing the collective power of government to provide bespoke place-based regeneration in twenty of England’s areas most in need of levelling up over 2023-24 and 2024-25.  The government will ensure a fair geographic spread across the regions of England, inviting the following areas to develop a partnership including:  City of Kingston upon Hull, Sandwell, Mansfield, Middlesbrough, Blackburn with Darwen, Hastings, Torbay, Tendring, Stoke-on-Trent, Boston, Redcar and Cleveland, Wakefield, Oldham, Rother, Torridge, Walsall, Doncaster, South Tyneside, Rochdale, and Bassetlaw.  Apportionment of this investment will be made on a case-by-case basis, and in each of these places, the government will work with local leaders and mayors in councils and combined authorities, local businesses from all sectors, community organisations and residents to identify and address the biggest barriers to levelling up.

From the Government Investment Zone prospectus, it is noted the following areas in England to begin discussions with Government and co-develop proposals for an Investment Zone.  The eight places are those covered by:

  • The proposed East Midlands Mayoral Combined County Authority
  • Greater Manchester Mayoral Combined Authority
  • Liverpool City Region Mayoral Combined Authority
  • The proposed North East Mayoral Combined Authority
  • South Yorkshire Mayoral Combined Authority
  • Tees Valley Mayoral Combined Authority
  • West Midlands Mayoral Combined Authority
  • West Yorkshire Mayoral Combined Authority

Subject to the relevant site’s proposals meeting specified requirements, Government will offer Investment Zone areas a total funding envelope of £80m over five years, which can be used flexibly between spending and a single five-year tax offer, scalable based on number of sites.  This would consist of:

  • £35m flexible spend, split 40:60 between resource spending (RDEL) and capital spending (CDEL), to use across a portfolio of interventions based on the opportunities of each cluster;
  • Tax incentives, which can cover up to 600ha across up to 3 sites, lasting for 5 years.  Where places do not opt for the maximum tax offer of 600ha, tax incentives can be exchanged for a greater amount of spend.

Thankfully, the immediate response was largely positive and considerably more muted to last year’s ‘mini-Budget’ that saw Mr Hunt’s predecessor, Kwasi Kwarteng MP forced out of the role after only 38 days in office.

Over the coming days and weeks, various Government departments will publish fuller details that will assist in understanding how these announcements will impact UK businesses.  As with the 1980/90s Enterprise Zones before, tax relief and wider fiscal incentives can certainly help to bolster regeneration and growth across regions, businesses and the wider economy – particularly when carefully focussed to help support Net Zero and innovation – aligning with the recently released Skidmore Report – “Mission Zero”.

For full details on all built environment announcements, download our budget reaction document from the right panel.

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