Spring Budget 2024: the CBI impact

Alongside the Spring Budget, the Office for Budget Responsibility (OBR) released its economic and fiscal outlook.

The OBR forecast for the UK economy remains broadly in line with the November forecast. While growth is boosted by higher-than-expected population growth and lower energy prices, this is offset by the higher and more persistent rate of economic inactivity. As GDP at the start of 2024 was lower than anticipated in the November forecast, GDP growth is revised up from 0.7% to 0.8% in 2024 and from 1.4% to 1.9% in 2025.

Inflation has come down faster than anticipated to 4.2% in Q4 2023 and is forecast to fall below the Bank of England’s 2% target by the end of this year, and to a 1.5% average in 2025. This is driven by a larger-than-anticipated fall in global energy prices and falling vacancies. With easing inflationary pressures, the market expects interest rates to fall faster from the current peak of 5.25% to 4.2% at the end of 2024.

The UK’s public finances forecast also remains broadly unchanged since the November forecast. While lower bank and gilt rates reduce debt interest costs by £14bn per year, lower inflation reduces the amount that tax receipts increase by, which means £15bn less is raised by 2028-29. Combined with the Chancellor’s announced measures, public sector net borrowing is around £4bn higher in 2028-29 compared to November.

Despite the announcements, which reduce the overall tax-to-GDP ratio by 0.5%, the OBR still forecasts that the overall tax burden will reach a post-war high of over 37% of GDP by 2027-28.

Public sector net borrowing is expected to reach £114.1bn (4.2% of GDP) and £87.2bn (3.1% of GDP) in 2023-24 and 2024-25 respectively.

Public sector net debt rises from 97.6% of GDP this year to a peak of 98.8% of GDP in 2024-25, before falling slightly to 94.3% GDP in 2028-29. This is on a similar path to the November forecast.

With public debt falling as a proportion of GDP, the Chancellor is on track to meet his fiscal targets by a narrow margin. This leaves him with a fiscal headroom of £8.9 bn at the end of the forecast period, the second smallest fiscal headroom just after the Chancellor’s Budget in March 2023.

The exchange rate showed a relatively muted reaction to the Chancellor’s Budget. As of 2pm, the pound stood at $1.27 against the US dollar and €1.17 against the euro, broadly unchanged from when the market opened this morning.

Gilt yields ticked up through the morning, but eased when the Chancellor began delivering his Budget in the House of Commons. By 2pm, yields remained close to where they stood when markets opened, with the 2-, 10- and 30-year gilt yield standing at 4.61 (+0.02pp since 8am), 4.12% (+0.01pp) and 4.45% (0.01pp), respectively.

Equity markets reacted positively to the Budget. Both the FTSE 100 and 250 climbed steadily following markets opening this morning, with growth accelerating as measures were being announced. The FTSE 250 (more reflective of domestic companies) rose faster (gaining 1.3% in value since markets opened) than the FTSE 100 (which rose 0.5%), likely reflecting investor reactions to the Chancellor announcing plans for a new British ISA increasing the tax-free allowance for retail investments in UK firms.

The CBI welcomes the additional £120m announced for the Green Industries Growth Accelerator (GIGA), a fund now totalling £1.1bn worth of investment. This will help businesses strengthen their UK supply chains in low carbon manufacturing and reduce costs. Further clarity was also announced on how the GIGA fund will be spent.

Also welcome is £270m of new joint investment for businesses developing EV batteries and zero-carbon aircraft via the government’s Advanced Manufacturing fund. This will help stimulate R&D and production in the UK. 

The government has increased available funding for wind, solar and tidal technologies, with up to £1bn of total allocation available for projects delivered in the next five years. This is a significant recognition of the market conditions facing developers, and an important signal to retain the UK’s attractiveness for renewables investment given growing international competition. 

On oil and gas, a one-year extension to the Energy Profits Levy has been announced meaning that North Sea oil and gas producers will be subject to a 75% tax rate until 2028/29. This is counterproductive for the transition to net zero. It also undermines the stability provided by the Energy Security Investment Mechanism announced in the 2023 Autumn Statement. The CBI continues to call for government to commit to no further sector-specific taxes – windfall or otherwise.

The CBI has been campaigning for the government to put more emphasis on delivery by developing a Net Zero Investment Plan that sets out existing funding gaps and an investment roadmap across net zero technologies. While increased funding availability is welcome, the UK lacks an overarching strategy that offers investors the confidence to crowd-in the private finance needed.

There were no announcements to support the net zero transition in transport – namely, no progress on introducing a price stability mechanism for Sustainable Aviation Fuels, reducing VAT on public EV charging to incentivise uptake or extending the plug-in van and truck grant beyond 2025 to support the decarbonisation of commercial vehicles.

The government reaffirmed its commitment to improving the UK’s grid infrastructure – a long-standing CBI campaign priority. This included highlighting that the Electricity Systems Operator (now called the National Energy Systems Operator) will publish the transitional Centralised Strategic Network Plan later this month. The government estimates that this will stimulate up to £60bn additional investment in the GB network. 

Later in 2024, there will be a consultation on the UK’s Carbon Border Adjustment Mechanism, due to be introduced from 1 January 2027 on relevant goods imported in the aluminium, cement, ceramics, fertiliser, glass, hydrogen, iron and steel sectors.

The Chancellor confirmed, following representations from the CBI, that he will guarantee the hourly rates will be paid to childcare providers to deliver the expansion to 30 hours funded childcare for working families. This represents an estimated additional £500m of investment over two years. It is a welcome announcement since it demonstrates a continued commitment from the government to support and incentivise parents returning to work.

There were few announcements on the future of work and skills agenda, with no announcements to address immediate skills shortages and create a labour market for the future. We know that the UK’s economic prosperity lies within the health and productivity of its workforce, yet opportunities to harness this potential were missed.

With an estimated 6m workers considering leaving work due to health problems, businesses will be hugely disappointed that the government missed a vital opportunity to make Employee Assistance Programmes (EAPs) a fully tax-free benefit. This would tackle mental health issues as the main workforce health risk and would make recommended medical treatment tax relief more focused on prevention by removing the ‘28-day unfit for work’ condition and scrapping the £500 tax-free cap to incentivise earlier intervention in treating musculoskeletal conditions, the second highest health risk.

We, along with many others, have long campaigned for reform of the Apprenticeship Levy including transparency on how the full levy take is allocated. The feedback we receive is that the levy does not achieve its intended goal and the government must address this through creating flexibility and increasing transparency to address the education and skills needs of the future. 

The CBI will work with the government to understand the specific rate given to providers to deliver childcare expansion to 30 hours of funded childcare, and whether that rate is sufficient. It will also continue to support the overall implementation.

The CBI will continue to work with HM Treasury (HMT), HM Revenue & Customs (HMRC), Department for Work and Pensions (DWP) and Department of Health and Social Care (DHSC) to make the case for a tax system that incentivises employers to uptake health interventions and play their part in preventing poor ill-health. We will continue to develop and communicate evolving economic analysis around the economic benefit of such recommendations to support the case for change.

We will continue to campaign for reform of the Apprenticeship Levy and greater transparency around its use along with members and key industry stakeholders. 

The CBI welcomes the targeted support for our innovative high-growth sectors, helping the UK to compete on the world stage. This Budget saw the prioritisation of supporting high-growth industries, including: 

• Funding detail for advanced manufacturing innovation
• The Long-term Investment for Technology and Science (LIFTS) competition, to crowd-in investment from institutional investors to the UK’s most innovative science and technology companies
• Continued progress towards the Mansion House Reforms to increase investment in British businesses.

We welcome the announcement of a £7.4m AI Upskilling Fund Pilot that will help SMEs develop the AI skills of the future. Demand for specific advanced digital skills is a priority for many businesses and a potential game-changer for competitiveness and growth. The launch of the SME Digital Adoption Taskforce is also welcome, and the CBI looks forward to contributing to its work.

As the government’s new, merged R&D tax credit scheme kicks in from April 2024, we look forward to the business voice being centred through government’s new R&D tax reliefs expert advisory panel.

We would have liked the government to explicitly recommit to its £20bn R&D target for 2024-25, and the £22bn public R&D spending target for 2026-27. We hope this commitment remains as the next Spending Review envelope is shaped, as this level of public funding will be central to driving increased private sector investment in R&D.

We welcome the government’s announcement to officially launch the SME Digital Adoption Taskforce – announced in the Autumn Statement – as it will bring different voices together. However, the CBI has recommended that a Technology Adoption Champion could work closely with UK business to plan and drive a coherent suite of offers supporting firms to adopt technology. 

To support the development of a pro-innovation system of AI governance and implementation, the CBI recommended the government establish an Office for Future Regulation (OFR) which would ensure full implementation of the Pro-Innovation Regulation of Technologies Review and facilitate innovation-boosting regulation. 

The CBI will continue to press for implementation of the government’s White Paper on AI regulation. Businesses require clarity and certainty on the day-to-day deployment of emerging technologies.

We’ll continue to support our high growth industries and the government’s implementation of prior announcements, such as the Mansion House Reforms, LIFTS competition and Spin-out Review. 

And we will collaborate with innovation member trade associations and R&D-intensive members to push the importance of maintaining an ambitious national target for R&D spend, and implementation of the Science and Technology Framework across government delivery.

Finally, the CBI will continue to fight for R&D tax credits to be extended to capital spending to encourage innovative businesses to build facilities like labs and testing sites in the UK, anchoring their R&D projects in the UK for years to come.

As a long-standing supporter of devolution and elected mayors, the CBI welcomes the announcement of a new Level 4 ‘trailblazer’ devolution deal with the North East Mayoral Combined Authority, which will provide potentially over £100m of new funding.

Level 4 devolution will provide each mayor with a single pot of funding, greater autonomy and more regionalised decision making to fund the opportunities and initiatives which will drive regional growth. This will deliver the certainty and clarity businesses need to invest in places and boost the UK’s competitiveness.

The Budget also included: 

• a new Investment Opportunity Fund to unlock financing in Investment Zones and Freeports
• further details on Investment Zones in Greater Manchester, Liverpool City Region, North East of England, South Yorkshire, West Midlands and West Yorkshire
• the tax reliefs available in Freeport tax sites being extended from five to ten years, until September 2031 in England, and September 2034 in Scotland and Wales.

In addition, the government responded to calls from the CBI to develop an overarching strategy for planning, by launching An Accelerated Planning System Consultation. This would unlock trapped investment by giving construction firms the confidence needed to invest in UK housing stock, helping to alleviate the UK’s housing crisis and planning for vital national infrastructure.

We are still waiting for announcements on how the government is going to boost exports. With funding pots closed and available opportunities having decreased over time, we now compare poorly to our international peers. Better support is vital if government wants to reach the target of £1tn worth of exports per year by 2030.

We’re also still waiting on an investment strategy from government, as well as the delivery of the recommendations from the Harrington Review.

While we welcome the government’s consultation on speeding up the planning system, we are still missing measures to build capacity within local authorities to tackle planning application backlogs, in the short term. And we’re missing a strategy to deliver the National Infrastructure Commission recommendations in the Second National Infrastructure Assessment, to spur economic growth and levelling up across English regions.

The CBI is launching an infrastructure working group focused on shaping CBI policy on critical national infrastructure. The CBI will continue to ask the government to prioritise publishing a UK strategy for accelerating the delivery of key infrastructure projects. 

The CBI will also continue to push for an Export Growth Group and implementing new levers to encourage exports.

We remain focused on the need:

• for the implementation of the recommendations from the Harrington Review
• for an Investment Strategy
• to embed UK competitiveness across Whitehall decision and policy making.

We welcome continued support for programmes and reforms that unlock investment flows to ensure businesses of all sizes and across all sectors of the economy can access the finance they need to innovate and grow. The extension of the third iteration of the Recovery Loan Scheme, now the Growth Guarantee Scheme, with £200m of funding is critical to overcoming information asymmetries which limit lending to SMEs. We also welcome progress on the Mansion House reforms, including the UK ISA, which seeks to build a stronger savings culture and increase investment into UK equities.

The government’s Green Finance Strategy, published last March, was well-received and provided a positive signal to both the investment community and those businesses needing to decarbonise. While this wasn’t the focus of today’s Budget, it is important that the government keep pace with delivery in this area, including on implementing internationally aligned sustainability and climate-related sustainability disclosures, taxonomies and transition plans. 

We will continue our engagement on sustainable finance, including through the Transition Finance Market Review, as well as on sustainability disclosures, taxonomies and transition plans.

Throughout the capital markets workstream, we will continue engagement on both access to finance for scale-ups, which is particularly relevant given the PISCES exchange consultation, as well as wider work on UK listings.

The 2% reduction in National Insurance Contributions (NIC) rates for workers is welcomed, helping employees and the self-employed keep more of their pay while inflation remains above target. Combined with the cut from 6 January, this amounts to an extra £900 per year for the average worker. But fiscal drag from the frozen tax-free thresholds means the real terms tax burden will still rise in the next few years for most workers. 

The Chancellor committed to publish draft legislation extending full expensing to leased and rented assets, to be implemented as soon as public finances allow. Once implemented, this will allow businesses to decide for themselves whether it is more efficient to buy equipment or to lease it – and it should keep costs down for those who choose to lease.

The decision to increase the VAT threshold from £85,000 to £90,000 will provide limited relief for businesses close to the threshold, allowing them to keep prices competitive for their customers. However, it does not address the overall cliff-edge around VAT registration and a longer-term solution is needed. 

There was targeted support for key creative sectors – including business rates relief for TV studios, a new tax credit for small independent film productions, better rates of audio-visual tax credits for video special effects, and reliefs for orchestras, museums and theatres made permanent. These changes provide welcome certainty, increase the competitiveness of the UK’s world-leading creative sector and could have spillover benefits for the retail and hospitality sectors.

The Chancellor missed an opportunity to show that he is on the side of motorists and workers who use their own vehicles for business travel by not updating the tax-free Approved Mileage Allowance Payment (AMAP) rates which were last reviewed in 2011. A recent CBI survey found nearly one in five businesses reported cases of employees refusing to make business journeys due to the rates no longer being adequate.

Other than TV studios, there was no relief for businesses subject to the main universal business rates multiplier. The 6.7% increase in business rates will take effect from 1 April 2024, and CBI survey data suggests a third of businesses will have no choice but to pass on additional costs to their customers.

We will continue to make the case for increasing tax-free mileage allowances and we'll provide further evidence to the government on expanding VAT relief for goods donated by businesses to charities.

We'll continue to work with government to ensure full expensing is extended to leased and rented assets as soon as possible. And we’ll work with government and opposition parties to design a more sustainable long-term plan for business property taxation, ending the spiralling costs of business rates.

The Northern Ireland Executive is receiving around £100mn in additional funding through the Barnett formula. The government will also provide approximately £150mn, to develop an Enhanced Investment Zone for Northern Ireland. Finally, a commitment of £2mn was made to boost global investment and trade opportunities in Northern Ireland.

The support for childcare will not apply in Northern Ireland as this is a devolved matter.  Northern Ireland does not currently have a childcare strategy, but the development of one is a key priority for the newly restored NI Executive.  

The CBI will engage with local politicians and stakeholders as further details are published on the Enhanced Investment Zone and support to boost global investment and trade opportunities in Northern Ireland. We’ll also engage with the NI Executive to ensure that in the development of a Childcare Strategy for Northern Ireland, the learning from elsewhere is considered. 

The Scottish government is set to receive around £295mn of additional funding through the Barnett formula, on top of the additional £1.4bn previously announced. The government will also extend the Investment Zones programme in Scotland from five to 10 years, meaning IZs will have access to £160mn of funding.

In addition, the reduction in the VAT threshold will be welcomed by SMEs in Scotland, and the freeze in alcohol duty will help exports of whisky.

Childcare support measures in Scotland are devolved, so the measures announced by the Chancellor will not be met in Scotland unless an equivalent fund is set up by the Scottish Government. We will work with Scottish Government officials to get a guarantee that there are enough childcare providers to fulfil the capacity required.

The CBI Scotland team will work with Scottish Government to better understand what additional funding will look like in reality.

CBI Scotland will also continue to set up meetings between tech and innovation firms across Scotland, working with both UK Government and Scottish Governments to capture opportunities for investment zones in Scotland.

The government announced the extension of the Investment Zones programme to 10 years in England and Wales, and the extension of Freeport tax reliefs to 2031.

It also announced extra funding for towns, as well as a further £100mn of levelling-up funding including Conwy.

And, a £160m deal with Hitachi for Wylfa site acquisition was also confirmed, suggesting a revival of the project could be possible.

Finally, the government announced £5m of investment into an agri-food Launchpad in Mid and North Wales.