UK will avoid a ‘technical recession’ in 2023, chancellor says

In his first full speech to Parliament, chancellor Jeremy Hunt said that the UK has "proved the doubters wrong" and confirmed that the country will not enter a technical recession in 2023. 

Announcing the Spring Budget, Hunt stressed predictions that inflation rates will fall from their 10.7 per cent high, reached in the final quarter of 2022, to 2.9 per cent by the end of 2023. The chancellor described this as a sign that the government's economic measures are "working".

Despite his announcement, the Office for Budget Responsibility (OBR) still forecast a contraction of 0.2 per cent this year. 

“We remain vigilant and will not hesitate to take whatever steps are necessary for economic stability," Hunt added. 

During his speech, Hunt announced a package of measures aimed at reducing the pressure that the cost-of-living crisis has had on the UK population. It was confirmed that the government will extend the energy price guarantee, which caps average household bills at £2,500, from April to June. The guarantee had been expected to rise to £3,000 in April, threatening many vulnerable households. The cost of extending the cap was said to amount to around £3bn.

“We know people are worried about their bills rising in April, so to give people some peace of mind we’re keeping the energy price guarantee at its current level until the summer when gas prices are expected to fall," prime minister Rishi Sunak said. 

The chancellor stressed that the UK has become "a world leader in offshore wind" and that he would take both short and long-term measures to reduce the costs of energy for businesses.

“I will extend the Climate Change Agreement scheme for two years to allow eligible businesses £600m of tax relief on energy-efficiency measures," Hunt said. "But the long-term solution is not subsidy but security."

£20bn of support has been allocated for the early development of carbon capture projects, starting with projects from the East Coast to Merseyside to North Wales, which is said to support up to 50,000 jobs, attract private sector investment and help capture 20-30 million tonnes of CO2 per year by 2030.

The chancellor also declared nuclear energy to be a green energy source and said he would launch “Great British Nuclear” to bring down costs.

Regarding new technologies, Hunt announced an “AI sandbox” to boost support for artificial intelligence businesses in the UK, as well as a “quantum strategy” to support the future of computing.

In addition, the chancellor announced that he would freeze fuel duty and maintain the 5p cut for an extra year. This measure is said to save drivers around £100. The decision was praised by motorists, as government figures show the average cost of a litre of petrol and diesel at UK forecourts is around £1.47 and £1.67 respectively.

Moreover, a “Brexit pubs guarantee” will see duty on draught products up to 11p lower than in supermarkets, the chancellor said. 

He also confirmed that the government would add £11bn to the defence budget over the next five years, in order to reach 2.25 per cent of GDP by 2025.

In his speech, the chancellor said the government would not rest until the UK is “Europe’s most dynamic enterprise economy”, as it announced a series of measures to attract investors and boost economic activities. 

“We already have lower levels of business taxation than France, Germany, Italy or Japan," he said, "but I want us to have the most pro-business, pro-enterprise tax regime anywhere. Even after the corporation tax rise this April, we will have the lowest headline rate in the G7 – lower than at any period under the last Labour government."

Hunt announced that the government would increase the Annual Investment Allowance to £1m, meaning 99 per cent of all businesses can deduct the full value of all their investment from that year’s taxable profits. Corporate tax will also increase to 25 per cent, he said. 

He also said small or medium-sized businesses will be able to claim a credit worth £27 for every £100 they spend, if they spend 40 per cent or more of their total expenditure on research and development. 

As reported earlier this week, the chancellor also announced the creation of 12 new investment zones, spread across West Midlands, Greater Manchester, the North East, South Yorkshire, West Yorkshire, East Midlands, Teesside and Liverpool. There will also be at least one in each of Scotland, Wales and Northern Ireland.

Reacting to the Budget, AA head of roads policy Jack Cousens said: “We are pleased the Chancellor has listened to the AA and frozen fuel duty. Not only will this save drivers heavy duty pain at the pump, but it will help keep the price of goods and services down as they are mainly transported by road.”

Mike Foster, CEO of the Energy and Utilities Alliance, said: “We warmly welcome the decision to extend the Energy Price Guarantee, helping to protect consumers against a 20 per cent increase from April. It’s good that the Chancellor has listened to us in the energy industry as well as consumer champions who have all backed this move."

Citizens Advice chief executive Dame Clare Moriarty said the “welcome step” of extending the existing EPG would protect millions of people from unaffordable energy bills.

 “Unfortunately it’s not all good news," she added. “With millions already unable to afford their bills and energy prices set to remain high in the years ahead, the government must now look at long-term solutions to this problem."

Responding to the announcement of £20bn of CCS funding James Larnder, managing director, Aquaterra Energy said: "The significant funding of £20bn for UK carbon capture and storage is a landmark for the industry. Alongside our ambitious targets, it should be the catalyst for the country realising its potential as a global CCS leader.

"With the policy, funding and ambition established, the onus falls onto operators to seize the opportunity. The UK’s existing skillset from North Sea oil and gas provides a key advantage and much of the essential technology and expertise is already in place. Operators who can adapt these existing practices for CCS will have a significant head start in this vital industry for the UK’s net zero ambitions."

Neil Murphy, global channel chief and SVP sales EMEA at ABBYY said: "As we have seen, the country is moving towards greater adoption of AI and technology, but a people-centric approach is necessary to retain employees and maximise productivity. When it comes to digital transformation, solutions need to be seen as an aid to human workers rather than a substitute."

Nonetheless, Paul Johnson, director at the Institute of Fiscal Studies has criticised the Chancellor's Budget on Twitter. He described aspects of the Chancellor’s approach to fuel duty as “absurd” and the plan for overall spending to increase by just 1 per cent post-election as “unlikely to be met”.

Labour’s shadow climate secretary Ed Miliband has criticised the Chancellor for failing to announce a windfall tax to make oil and gas companies “pay their fair share”.

“Finally the Government has accepted Labour’s demand to stop energy prices rising,” Mr Miliband tweeted.“But they still refuse to do a proper windfall tax to make the oil + gas giants pay their fair share."

Meanwhile, Alex Taylor, head of Policy at the Institution of Engineering and Technology (IET), said: “The Chancellor has set out his ambition to drive economic growth, skills and jobs in the UK. 

“Investment in nuclear, which is part of the solution to produce a decarbonised energy supply and dependable energy security, is positive.  We must ensure nuclear energy technologies continue to be developed to further improve their safety, economic effectiveness and reduce their environmental impact.   

“However, it’s disappointing that the budget contained limited specific measures to incentivise the transition to net zero.  Measures in support of home insulation / retrofitting buildings would create a win-win-win scenario: a win for society, for industry and for the government.  

“Finally, strategic investment in artificial intelligence has the potential to transform many aspects of society, from healthcare to transportation – but to do this we more people with the right skills. More work also needs to be done to ensure that AI is developed in an ethical and responsible manner to unlock its full potential and benefits.”

At EngineeringUK, Beatrice Barleon, head of policy & public affairs said: “We welcome the Government’s ongoing commitment to make the UK a science and technology superpower and the ambitions of growing the economy, meeting our Net Zero targets, and unlocking the potential of every region.  We also welcome the acknowledgement that to achieve this, businesses, including engineering and technology businesses, urgently need a larger skills and workforce base, now and in the future.”

“However, the measures on childcare as well as the focus on those over 50 will not, on their own, solve the wider skills and workforce shortages in the engineering and technology sector in the long-term. We urgently need greater investment in and focus on STEM education, STEM teachers, careers provision and vocational pathways for young people.”

Stephen Phipson, Chief Executive of Make UK, said: “Given the limited headroom the Chancellor had, his pursuit of continued stability and reassurance is understandable. Within this he was right to focus on significant measures to boost investment and the welcome support for childcare.

"Companies will be disappointed, however, that there is no extension of support for energy with the rapidly approaching cliff edge of the current scheme ending, while the planned changes to R&D tax credits remain and will be unwelcome for SMEs in particular as they are implemented in April."

In relation to the news that nuclear energy will qualify for the same incentives as renewables, Simon Tucker, global head of energy, utilities & resources at Infosys Consulting said that "£20 billion is a drop in the ocean compared to what the US and Europe are planning to subsidise, but it’s a start". 

Richard Robinson, CEO at Atkins UK and Europe said: "The government must now focus on two key enablers which will allow actual delivery on the ground, accelerate the net zero transition and improve productivity across the UK: streamlining the planning and consenting process; and providing a far clearer long-term view of investment priorities which will give businesses the direction needed to recruit, upskill and innovate with greater confidence."

The Chancellor said these plans would help drive growth in the UK by “removing obstacles that stop businesses investing; by tackling labour shortages that stop them recruiting; by breaking down barriers that stop people working; and by harnessing British ingenuity to make us a science and technology superpower."

Referring back to his Autumn Statement, the Chancellor said: “In November we delivered stability. Today it’s growth."

Edited at 14:28 to add comments from Aquaterra Energy and ABBYY, at 15:38 to add comments from The IET and at 16:58 to add comments from Atkins, Infosys, Make UK and Engineering UK.