Budget reaction: lack of energy support sparks concern

London, UK: Industry has welcome most of the budget measures especially the continued fuel duty cut, but the lack of energy support has sparked concern.

The Chancellor Jeremy Hunt has thrown a lifeline to the industry by pledging to carry on with the 5p per litre fuel cut – originally introduced in March 2022 – for another year. However, failure to announce any further help for businesses with energy costs has alarmed trade associations.

Logistics UK’s chief executive, David Wells, says: “Today’s announcement that the 5ppl cut in fuel duty is to be retained for a further 12 months is very welcome news for logistics businesses, particularly SMEs – who make up 99% of the industry, and traditionally operate on low margins.

“This decision recognises the importance of managing logistics costs to avoid further inflationary pressures on business and consumers. This should help to ensure businesses have the funds to invest in productivity, growth and greener technologies, alongside the new policy for full capital expenditure announced as the successor to the super-deduction (providing it encourages the transition to a zero-carbon economy).

“However, Logistics UK is dismayed by the lack of support to help businesses with energy costs and our sector’s transition to a low carbon economy, something which the government has urged industry to commit to. This is a missed opportunity. Our members will also be concerned about proposals for a reformed HGV road user levy and together we will be seeking urgent clarification as to the detail involved.”

Declan Pang, RHA director of public affairs and policy, England, said: “We are pleased the government has listened to the RHA and the industry by freezing fuel duty and maintaining the 5p per litre cut in duty. This is vital to controlling inflation, reducing the cost of the supply chain and keeping prices down.”

The budget provided some support for warehousing and logistics businesses, but it should have gone further, according to Clare Bottle, chief executive, UK Warehousing Association, said: “We welcome the chancellor’s announcement of a replacement to the super deduction tax allowance – something we had lobbied for, on behalf of our members. But the fact that nothing has been done to correct the unfairness of business rates is very disappointing,” she said.

The former super deduction tax allowance, against the cost of certain plant and machinery, comes to an end on 31 March 2023, but under a new ‘full expensing’ scheme included in the Spring Budget, investments made by businesses on qualifying plant and machinery over the next three years will attract a 100% first-year allowance. This will incentivise business growth and should boost the adoption of robotics and the installation of solar panels on warehouse rooftops.
Simultaneously to the Spring Budget, the government published a Summary of Responses document and Information and Impact Note in respect of each of its two consultations looking at business rates reform, alongside launching a further consultation relating to the Valuation Office Agency disclosing more information on business rates valuations.

“This new measure will help support warehouses looking to invest in updating and improving their operations, including the upfront investment of installing rooftop solar panels as part of their drive to save costs, improve energy resilience and decarbonise on their journey to net zero,” Bottle said.
But she warned that the assumption that businesses with larger buildings require less support fails to recognise the reality of low-margin SMEs operating within the warehousing sector. “Unfortunately, this important opportunity to enable the warehousing sector to facilitate growth and support the levelling up agenda has been largely missed.”

Shevaun Haviland, director general of the British Chambers of Commerce, said: “Almost half of businesses have told us they will struggle to pay their energy bills from April, and they cannot invest when they are fighting to survive. There is little in today’s announcement that will provide comfort to these firms.

“The government failed to reform business rates which we have repeatedly called for. If the UK’s innovative growth industries are to remain competitive on the world stage, then Government must shift the dial further on investment, both within the UK and from overseas.”

David Bushnell, director of consultancy and strategy at Fleet Operations said: “For fleets, the decision to freeze fuel duty and retain the 5p reduction for a further year comes as welcome news for operators struggling with a burgeoning cost crisis. Pump prices may have fallen back from their 2022 summer peak, but they remain markedly higher than in recent years. Margins, consequently, continue to be hit hard.

“The move, however, will not be well received by those looking to accelerate transport electrification. Environmentalists will be buoyed by a pledge of up to £20bn to support carbon capture, but the lack of any significant new measures to further incentivise electric vehicle (EV) adoption and infrastructure roll out signals a missed opportunity.

“Elsewhere, fleets buying vans and trucks will benefit from a new policy of ‘full expensing’ but the importance of leasing as an integral ingredient to cost-efficient fleet operations remains unrecognised. It is disappointing that the industry’s call for a super deduction to cover leased assets has been ignored.”

Other Budget announcements

  • Additional funding (an extra £200m a year) for councils to tackle potholes
    A new apprenticeship, called a returnership, will be created for those aged 50 and older wanting to return to work
  • An extra £400m will increase mental health and musculoskeletal workplace support to stop people being forced to leave work due to sickness
  • As corporation tax on profits over £250,000 is due to rise from 19% to 25% in April, businesses will be able to offset 100% of UK investments against their profits to bring down tax bills
  • Twelve new investment zones or “potential Canary Wharfs” will be eligible for £80m in funding to boost business there, with at least one each in Scotland, Wales and Northern Ireland
  • Up to £600m in tax relief on energy efficiency measures has been announced for businesses, in a bid to reduce energy use by 15%.

Budget highlights
Finance minister Jeremy Hunt used his budget today to help speed Britain’s stagnating economy. He said the economy was now set to avoid a recession this year – even if it will still contract. After the shocks of Brexit, a Covid-19 hit and double-digit inflation, Britain’s is the only Group of Seven economy yet to recover its pre-pandemic size, having already suffered a decade of near-stagnant income growth.

Hunt expanded free childcare to children under two in England as a way to get more young parents into work. Another measure to boost the size of the workforce abolished penalties for people breaking thresholds on pension contributions in an attempt to keep more older people in work. The OBR said it was hard to forecast the impact of Hunt’s attempts to get more workers into the jobs market and it warned that the participation rate – people in work or looking for it – was set to hit a 23-year low next year before rising again.

Hunt also announced a new incentive for business investment that will allow companies to offset 100% of their capital expenditure against profits, although that represented a scaling-back of tax breaks under a previous scheme. The OBR said the change would not cushion all the pain for companies whose corporate tax rate will leap next month to represent its heaviest burden on businesses since the tax was introduced in 1965.

Under a new set of economic forecasts, gross domestic product was set to shrink by 0.2% in 2023 rather than contract by 1.4% as projected by the OBR in November. The OBR forecast economic output would grow by 1.8% in 2024 and by 2.5% in 2025, Hunt said, compared with its previous forecasts for growth of 1.3% and 2.6% respectively. It cut its forecast for inflation this year to 6.1% from 7.4% in November – and said it would remain under 1% for the following three years.