Autumn Statement 2023 Part 2: R&D Tax Relief and Investment Zone Expansion Drive Economic Prosperity

autumn statement

Welcome to part two of our blog post series on the 2023 Autumn Statement. In this installment, we will delve deeper into the notable highlights and key announcements made by Chancellor Hunt. From simplifying R&D tax relief to extending investment zones, as well as the decline in inflation and the government’s commitment to economic stability, we’ll explore the significant developments shaping the UK’s economic landscape. So, let’s continue our journey into the intricacies of this year’s Autumn Statement.

Simplifying R&D Tax Relief and Extending Investment Zones

In terms of research and development (R&D) tax relief, Chancellor Hunt aims to simplify the system. The R&D expenditure credit and small or medium-sized enterprise (SME) scheme will be merged to reduce the tax rate for loss-making companies from 25% to 19%. This merger is expected to streamline the process and provide additional support to businesses engaged in R&D activities.

Investment Zones also play a significant role in the Autumn Statement. Chancellor Hunt plans to extend the scheme and tax reliefs for free ports from five years to 10 years. Additionally, three new investment zones will be established in the West Midlands, East Midlands, and Greater Manchester. These zones are aimed at attracting investment and fostering economic growth in these regions.

Decline in Inflation and Government’s Commitment to Economic Stability

One of the key points highlighted by Hunt, the Chancellor, was the notable decline in inflation, which dropped from 11.1% to 4.6%. According to the Office for Budget Responsibility (OBR), it is projected that headline inflation will further decrease to 2.8% by the end of 2024 and eventually reach the 2% target in 2025.

In his speech, Hunt emphasized the importance of managing inflation and highlighted how the measures taken would effectively lower inflation rates compared to the expected levels. Additionally, he discussed the government’s commitment to reducing debt. Although debts were predicted to rise to almost 100% of GDP, the economy has outperformed expectations, resulting in a more optimistic outlook.

The OBR forecasts a steady growth rate for the economy, with a projected increase of 0.6% this year, followed by 0.7% next year, and a further rise to 1.4% in 2025. These positive indicators demonstrate the government’s efforts to foster economic stability and growth.

Furthermore, Hunt revealed plans to enhance tax compliance by providing additional resources to HM Revenue and Customs (HMRC). This investment aims to generate an extra £5 billion across the forecast period. While it remains unclear whether these funds are entirely new, this initiative showcases the government’s commitment to ensuring tax compliance.

Spring Budget Expectations

Looking ahead to the Spring Budget, there are expectations of further significant announcements. The Chancellor could potentially address inheritance tax, either by reducing the rate or abolishing it altogether. However, the decision to postpone tackling this contentious tax for now reflects the government’s cautious approach, considering the impact on lower and middle earners.

Another notable absence from the Autumn Statement was any updates on Stamp Duty Land Tax (SDLT). Although changes are expected after an HMRC consultation, the Chancellor may choose to address this issue in the upcoming Spring Budget. The current duty thresholds, introduced last year, will remain in place until 2025, suggesting that urgent changes are not required at this time.

The Autumn Statement delivered a clear message: the government is determined to support businesses, both large and small, as they navigate the challenges of a rapidly evolving economic landscape. Changes to ISAs, the National Living Wage increase, and the permanent extension of full expensing relief, mean the UK economy is poised for further development. Additionally, simplifications in R&D tax relief and the expansion of Investment Zones demonstrate the government’s commitment to supporting businesses and driving economic prosperity. With tax cuts driving growth and incentivizing investment, the Autumn Statement 2023 sets the stage for a brighter future, positioning the UK as a hub of innovation and opportunity.

As we anticipate the Spring Budget, it will be interesting to see how the government addresses key issues such as inheritance tax and SDLT. If you have any concerns about how government changes will affect your business, don’t hesitate to reach out to an expert DSW Tax Advisory advisor.