As Chancellor, one of George Osborne’s favourite refrains was that his programme of austerity was akin to ‘fixing the roof while the sun was shining’ – putting the public finances in order that the UK economy was more resilient for future challenges.
Whether the former Chancellor succeeded, is a point of debate. What is beyond doubt is that it’s now raining, and the current Chancellor, Jeremy Hunt MP, has a long list of building work that needs doing.
Everywhere he looks, there are demands for more money.
The NHS. Defence spending. Energy bills. Transport. Childcare costs. Incentivising the over-50s to work. Support for science and technology.
Hunt was handed some flexibility ahead of his statement, with better-than-expected economic growth, and falling wholesale energy costs. But this was still a Budget of tough choices.
The Chancellor did indeed extend the Energy Price Guarantee, introduce ‘free’ childcare for one and two year olds, and introduce an uplift in spending on defence, by £11bn a year.
But in reality, this was a very targeted Budget, with a focus on business investment to try to stimulate economic growth.
While it was confirmed that Corporation Tax will rise from 19% to 25% for companies making £250,000 profits, the Chancellor did provide some offset with a series of changes to tax relief, particularly around investment. Most significantly, he announced full capital expensing for investments in IT equipment, plant or machinery for the next three years, and an increased rate of relief for loss-making R&D intensive SMEs. Eligible companies will receive £27 from HMRC for every £100 of R&D investment.
There was also a significant focus on high-growth sectors in the Budget, including green industries, digital technologies, life sciences, the creative industries and advance manufacturing. Sir Patrick Vallance, the outgoing Government Chief Scientific Adviser, will report on how regulators can better support innovation, and his successor, Dame Angela McLean, will conduct a review into advanced manufacturing.
Government will create new vehicles for investment into science and tech companies, tailored to the needs of UK defined contribution pension schemes, and it will use £2.5 billion over 10 years to make the UK home to world-leading quantum science and engineering. There will be an extension to the British Patient Capital programme, which will provide at least £3 billion in investment.
AI is a particular focus of the Budget, seen as an enabling technology for progress. £900m will be used to build a new super-computer, and to establish a new AI Research Resource – all with the aim of maximising the UK’s potential in this space. A new £1m a year prize will reward researchers who drive progress in critical areas of AI, and the Government will establish a taskforce to advance UK sovereign capability in foundation models, including large language models – the technology that underpins ChatGPT and Google Bard.
The Chancellor’s strategy is clear – encourage investment now, generate confidence and growth in 2023 and 2024, and use the added firepower it provides to fund pre-election giveaways ahead of the next General Election.
With an economy barely avoiding recession, a continued cost of living crisis, and little money in the Treasury’s coffers, he had little choice.
There is now an even clearer imperative for businesses to engage with government.
Firstly, if you have a costed, proven and immediate approach to driving growth, the Government will be a receptive audience.
This is particularly true of science and technology companies. Rishi Sunak’s two big focuses as PM are money, and science. If you can check both boxes, you stand a very good chance of being heard.
Secondly, engaging with government now will allow you to influence the potential pre-election giveaways, when Downing Street will look to court voters. It will be crucial to demonstrate how your policy recommendations will help the Government win over the electorate – a tough ask for businesses, but one which has the potential to unlock significant funding.
Following last Autumn’s catastrophic ‘mini-Budget’, the real thing today was always going to be a restrained affair.
The Chancellor had to hedge between continuing to show the fiscal responsibility that the markets demand, and try to stimulate the economic growth upon which the Conservatives’ electoral success will rest.
Now, we wait to see if the gamble will pay off.