• Tim Sarson, Partner |
  • Sharon Baynham, Director |
12 min read

In the book ‘The Secret Garden’, the protagonist Mary Lennox answers this question by saying that Spring is like sun shining on the rain and the rain falling on sunshine.

This seems an apt description for our economy as we progress towards the Spring Budget. 

The months since the Autumn Statement have felt like a continuous economic rainstorm. But recently there have been some glimpses of winter sunlight. A report by S&P Global flash PMI stated that the risk of a UK recession has fallen considerably, potentially undercutting earlier rainy forecasts from the Bank of England and the IMF that the UK would be the only G7 country to suffer a protracted recession.

There has been sunshine in the form of lower energy prices which have reduced the cost of the Energy Price Guarantee, easing public finances. The energy price cap is reducing in April, and as we move into Spring households will naturally use less energy meaning the planned withdrawal and refocussing of government support may be felt less in people’s pockets than it could have been.

January saw better-than-expected tax receipts resulting in a surplus of £5.4bn in the month. January is always a bumper month for tax payments and often shows a surplus because it is when workers, particularly the self-employed, pay their tax bills. This time the higher tax receipts have been helped by frozen thresholds, inflation and high employment. 

And in the last few days we have heard news of progress on the Northern Ireland protocol.

Somewhat ironically, another ray of hope is that with the UK tax burden at the highest level for seventy years there is unlikely to be any political capacity to raise any new taxes. Every cloud has a silver lining.

But the anticipated cold weather plunge over the next few weeks shows that winter is not over yet. Any suggestion to bring some spring-like fiscal loosening into our lives has been met with a weather warning from the Chancellor; the public finances continue to be tight and so the focus remains on reducing borrowing and not poking the inflation bear.  

So, what can we expect in the Spring Budget 2023?

In the last few days, the Chancellor has reiterated that he wants to cut taxes when the public finances allow. In particular, he wants business taxes to be more competitive, but the overriding message is that it is too early. 

So we expect a fiscally conservative budget with no significant tax cuts; these will be saved for closer to the general election. The corporation tax rate rise will go ahead as legislated. But the budget might be more activist than anticipated and could include some significant reveals. Where could they be? Read on for our insights.

Business Taxes

Corporation Tax Rate

There has been much speculation that the Chancellor might follow his predecessor’s path and u-turn on the planned increase in the headline rate of corporation tax to 25% from 1 April 2023. We think this is unlikely.

To do so would leave a big hole in the public finances to fill. It also doesn’t align with Sunak’s orthodoxy of an increased headline rate of corporate tax whilst also picking winners. And it would count as yet another embarrassing U-turn.

Besides, most businesses are now baking a change of government into their plans. Labour would be expected to raise the rate to 25%. Any attempt to freeze it at 19% would likely be viewed as temporary and not affect investment decisions.

Expectation: The planned increase to the mainline CT rate to 25% will go ahead.

Windfall Taxes

In the Autumn Statement we saw an extension to the windfall tax (Energy Profits Levy) imposed on the profits of oil and gas companies. The rate was increased from 25% to 35% bringing the overall headline tax rate for these companies to 75%. A new windfall tax (the Electricity Generator Levy) was introduced on the revenues of certain low carbon electricity generators, at a rate of 45%. 

Windfall taxes have not raised the tax revenues that the government expected although much of this is due to the fall in energy prices. There is a natural hedge between EPL income and the cost of the Energy Price Guarantee scheme.

We think the prospect of further extensions or new windfall taxes in other sectors is unlikely.  Whilst there may sometimes be a case for a windfall tax, they send a negative message to potential investors.

Likelihood: We do not expect any new windfall taxes

The transition to net zero

One core frustration for businesses, and one which was picked up in Chris Skidmore’s recent report, is the lack of strategy on how the tax system will be used to help the transition to net zero.

We have seen significant proposals coming out of both the US and the EU outlining how those two jurisdictions will help to incentivise investment and unlock funding for green spend.  We wrote about this in our recent blog “State aid is back with a bang and it is wearing green”. The UK is under pressure to set out how it will attract green investment.

With the super deduction due to end there is an opportunity for the UK to extend or refresh it with a focus on green and other nationally important capital spend. There are many areas in the UK economy where green technology exists but there is inadequate infrastructure to access it easily and ensure the UK can use it to accelerate the move to green technology and energy, ensuring we hit net zero goals. Hydrogen is a good example of this.

The recent narrowing of the UK R&D tax regime will also affect green investment and again we could see a focussed green innovation incentive, perhaps at a more generous rate. 

Any changes will need to offer certainty and stability. To change investment decisions, businesses need to know up-front if their project or spend will qualify. The UK has had a tumultuous year in terms of tax policy, and this can also act negatively on attracting investment. Businesses need to know what incentives are available and that they will stay in place for the foreseeable future. 

This is a difficult task when we have a general election in the near future, but if the government introduced bold, well targeted and efficient incentives this may be a legacy that would outlast their parliamentary term. 

Likelihood: If there is a rabbit out of the hat, we think it will be an extension to the super-deduction and the R&D regime focussed on green investment. The challenge will be whether it will be a big enough deal to disrupt policies being rolled out in the US and EU.

Investment Zones and Freeports

After being unveiled by Sunak when he was Chancellor, Freeports have gone strangely quiet. They did not even get a mention in Jeremy Hunt’s recent Bloomberg speech. 

Sunak’s original initiative was arguably overtaken by his plans to increase corporation tax whilst introducing a super deduction for certain plant and machinery spend. The agnostic nature of the super-deduction in relation to both location and sector arguably diluted much of the tax appeal of freeports. In October of 2021, the UK’s Office of Budget Responsibility stated that the Freeport tax breaks would cost in the region of £50 million but would offer little tangible benefit to the economy. 

Now the focus seems to be on Investment Zones, ironically the brainchild of Liz Truss. Although Jeremy Hunt reversed many of her tax policies, Investment Zones were merely mothballed whilst they were refocussed. 

Unlike freeports, Investment Zones did make an appearance in Hunt’s Bloomberg speech. The Spring Budget would be an ideal opportunity to set out the UK’s strategy for levelling up and it feels like Hunt may be working up to this. Bearing in mind the criticism from the OBR on freeports, however, Hunt may have to make a bold offering.

One interesting question is whether green initiatives will be wrapped up with Investment Zones or decoupled. They are two different objectives and so, in our view, should be addressed on their own merits. Green investment is a national need not a regional need.

Likelihood: Expect an announcement on Investment Zones possibly coupled with some form of devolution to allow local decision making.

Pillar Two

Pillar Two, the global minimum tax part of the OECD BEPS 2.0 work, is in progress. We do not expect any major announcements at the Spring Budget beyond a restatement of the UK’s commitment to its implementation and a progress report.

The relevant legislation is expected as part of the Spring Finance Bill which we expect to be published shortly after the Budget. This is likely to also include legislation for the Qualified Domestic Top Up Tax. 

Likelihood: No major policy announcements but we expect to see an update and inclusion of measures in the Spring Finance Bill.

Other business announcements

A number of consultations took place last year where we could see updates.

In 2021 the government launched a consultation on allowing overseas companies to re-domicile to the UK, permitting foreign-incorporated companies to move their place of incorporation to the UK whilst maintaining the same legal identity. The proposals are intended to encourage companies to relocate to the UK to strengthen the UK’s position as a global business hub. Many countries already allow similar re-domiciliations.

In 2022 there was a consultation to reform the tax treatment of foreign sovereign investors such as sovereign wealth funds. The original consultation included proposals to remove sovereign immunity from all UK direct taxation and replace it with a limited exemption meaning income and gains from UK immovable property and income from UK trading activity would be brought into tax.  

Employment Taxes

Getting individuals back to work promises to be another key area of focus in the Spring Budget, one which is likely to include but not be limited to tax measures. The government is particularly concerned about the over 50s choosing to take early retirement. They could seek to make the option of staying in work more attractive. 

Tax and NI changes

There was some media coverage of proposals to grant tax holidays for the over 50s returning to work for up to a year, and this does seem to be an area of focus for the government. They could also encourage employers to recruit more over 50s by introducing a similar exemption for employer’s NIC as applies for under 21s.


The government could increase the annual allowance for pensions savings from the current £40,000 per annum or increase the threshold at which the allowance starts to be tapered away. 

Alternatively, the government could increase the lifetime allowance which has been frozen at £1,073,100 until 2025/26. This might help in specific sectors such as the NHS where the hefty tax charges that start to kick in when the lifetime allowances is exceeded prevent senior doctors from working much needed additional hours.

A more ‘stick-like’ approach might be to restrict pensions freedoms so that the amount that can be taken tax-free from a pension (currently 25%) is reduced or the age at which individuals can access their pension pots (currently 55) is increased, although this is less likely to have the desired impact on NHS doctors. 

Working parents

The government might announce changes to childcare to encourage parents back to work. Some of these may include non-tax measures but it is possible that the government could announce tax deductions for childcare costs. 


Any measure that entices people back to work will need to consider giving tax breaks for retraining. The government has come in for criticism regarding the apprenticeship levy over the years and a recent report found that much of the money in the fund is used to upskill existing workers, often in management skills. Another option would be to introduce a super-deduction for employer-funded training costs.

Remove distortions that disincentivise work

The government could consider removing some of the distortions in the income tax system, particularly where high marginal rates of tax are faced, for example, earnings over approximately £50,000 attract a 40% tax but also trigger a tapered removal of child benefit. Above £100,000 the personal allowance is tapered away resulting in a marginal tax rate of over 60%.

Likelihood: An announcement is very possible on the pensions lifetime allowance. An overhaul of the apprenticeship levy or other training/retraining tax reliefs is also very possible. The other changes are less likely, especially removing distortions which would be expensive to implement. We do not expect to see the Health and Social Care Levy make a reappearance.

Personal Taxes

Other than the potential changes outlined above we do not expect to see many announcements on personal taxes. Any tax cuts will be saved until they can be announced in the run up to a general election so are more likely to be announced in an Autumn fiscal event with the changes coming into force from April 2024. 

One potential area for reform could be the non-dom regime. Labour has already announced that it will make major reforms to the regime if it gets into power. Having already nabbed the idea of a windfall tax on the energy sector from Labour, any changes to the non-dom regime might play into the hands of the naysayers who accuse the current conservative party leadership of looking more like the opposition party. 

A possibility would be to reduce the period for which the remittance basis can be claimed to ten years. Given political sensitivities it is also possible they may wish to rebrand this relief as a temporary residence relief.

If changes are to be made, it is to be hoped that the government undertakes a thorough consultation. It is in the country’s interest to incentivise High Net Worth Individuals to bring investment into the country rather than leaving it offshore. It could even give a short-term boost on remittances ahead of an election, but the UK’s regime is more generous than most other jurisdictions. 

Likelihood: There is a real possibility that we will see changes to the non-dom regime, but we would hope there would be a consultation ahead of any reform. 

Other Taxes

Again, we expect the Budget to be quiet for other taxes such as property taxes or VAT. 

We do expect fuel duty to be frozen despite the fact this sends the wrong message on climate change. It is difficult to see how politically the government could increase the duty that has been frozen since 2011 and was further cut by 5p in the 2022 Spring Statement for one year. 

One interesting area could be the Carbon Border Adjustment Mechanism (CBAM). The UK has been considering a CBAM for the steel industry due to concerns that steel with lower environmental credentials could be imported more cheaply than domestic production. This could pave the way for a broader CBAM, similar to the one the EU is introducing. The government has previously committed to consulting on carbon leaking measures and a CBAM, although no date was provided. Chris Skidmore’s recent net zero report recommended doing it this year.

Finally, business rates reform always remains a possibility, but it is usually kicked down the road. We think it will be kicked again. 

Likelihood: Fuel duty will be frozen and the 5p temporary cut will be extended. Some form of consultation on a CBAM or similar could well be announced.


So overall, we expect no tax cuts, no tax rises but possibly a big unveil on green and levelling up, in part to compensate for the removal of the super deduction and the increase in the headline rate of corporation tax. 

Tolstoy famously said that “Spring is the time of plans and projects”. Hopefully the Chancellor will take this to heart and lay out his strategy for how tax will contribute to these key objectives.