Spring Budget 2023 - a missed opportunity?

“The Chancellor delivers a modest fiscal boost against a backdrop of mounting domestic pressures” says Yael Selfin, Chief Economist at KPMG UK.

“A better than expected economic environment has added around £25 billion a year of wiggle room over the next five years, of which the Chancellor decided to spend £16 billion on average and £8.5 billion by 2027-28. We estimate that the package of measures announced today will boost the level of GDP by around 0.3% at its peak in 2024-25.

“The three-month extension to the Energy Price Guarantee at its current level comes as no surprise, costing the Exchequer £2.9 billion in 2023-24. Together with the additional modest support for businesses, the numbers still work out favourably for the Chancellor given the much larger £8.4 billion windfall from lower wholesale energy prices, and despite the lower receipts from the energy profits levy.

“The OBR’s downgrade of growth in the latter part of the forecast provides no relief for medium-term fiscal sustainability on top of the existing pressures from higher interest rates and an ageing population. GDP growth has been revised down in every year between 2025 and 2027, leaving just £6.5 billion of headroom to meet the fiscal rule of falling debt. This is the smallest amount of headroom any Chancellor has set aside against his primary fiscal target, which has averaged £25.6 billion in today’s terms since the OBR was established in 2010.

“Despite the comprehensive overhaul of capital allowance that replaces the super-deduction, the focus remains too narrow on plant and machinery and continues to exclude investments in intangible assets, which are key productivity drivers of a modern economy. It is also only temporary at this stage, serving to bring forward investment but not to increase the overall long-term trend.”

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About KPMG UK
KPMG LLP, a UK limited liability partnership, operates from 20 offices across the UK with approximately 17,000 partners and staff. The UK firm recorded a revenue of £2.72 billion in the year ended 30 September 2022.

KPMG is a global organization of independent professional services firms providing Audit, Legal, Tax and Advisory services.