#TradeTuesday: A ‘trade’ Budget in disguise

The Spring Budget, delivered last week by Chancellor Jeremy Hunt, ostensibly didn’t look to have focused particularly on international trade. But a deeper dive reveals the announcements in this fiscal event are a true trade Budget in disguise.  

With the improved economic outlook since the last Autumn Statement, businesses and Conservative backbenchers have called for Hunt to go further in supporting jobs and investment through the tax system. He responded by creating measures that directly or indirectly made last Wednesday an “international trade” Budget day…whether it intended to be or not. Find more analysis on this from the #TradeTuesday team below. 

1. Customs package  

As the package of measures to simplify customs import and export processes for businesses was not the most eye-catching or controversial item in the Budget, it probably past you by. But this package is an international trade giveaway, including a raft of measures which aim to modernise authorisations, simplify transit facilitation and ease declarations by the end of 2023.  

The government plans to engage with stakeholders on each measure in the coming months. The most significant is the announcement that the Spring Finance Bill 2023 will provide the means to introduce Advance Valuation Rulings (AVRs) to UK customers importing goods. AVRs are legally binding written decisions made by customs authorities at the request of a trader to provide certainty to customers on how to determine the customs value for goods. As customs values impact the amount of duty, AVRs aim to make the completion of customs declarations easier.

2. Investment (zones)  

The Chancellor confirmed the creation of up to 12 ‘Investment Zones’ across the UK; his aim is to boost growth and support links between businesses and universities in five priority sectors. Academics frequently assert that it is not the role of trade policy to inform industrial policy, but that industrial policy can stimulate growth and thus increase exports or trade.  

The Institute for Fiscal Studies has been critical of the Investment Zones idea, suggesting that (as with Freeports) the success of such activities may not be provable and that “such active industrial policies can pick ‘losers’ rather than ‘winners’”.  

The Budget encouraged business investment through the ‘zones’, the super-deduction replacement, and the full expensing regime; business groups largely welcomed these policies. In particular, “high-growth Industries” expect to receive more support: green industries, digital technologies, life sciences, creative industries and advanced manufacturing. These in turn could stimulate those businesses which are primed to increase their international trading activities.  

3. Shipping/ logistics  

Shipping companies will be interested in the announcement on the Tonnage Tax. For 18 months from 1 June 2023, an election window will enable companies shipping companies that left the Tonnage Tax regime to return to the UK “to take advantage of the substantive reforms to the regime that took effect last year”. This will be the first opportunity in 18 years for new entrants. Under the scheme, members pay tax only on the gross tonnage of their ships, usually a lower rate than corporation tax on profits.  

From April 2024, the government will also allow third party ship management companies to join the regime and raise the limit on capital allowances to £200 million for lessors of ships into the regime.  

Overall, this is designed to showcase another Brexit benefit after recent reforms removed EU provisions and removed administrative burdens for shipping companies to move to the UK which quite literally “boost the use of the UK flag”. 

Further, logistics companies travelling by road will be relieved at the announcement that fuel duty will remain frozen for another 12 months.  

So, is everyone happy now?  

Sadly not. While there was more in the Budget for trade than many realised, given that “trade” was not mentioned once by the Chancellor, there were some big elephants not addressed in the Chamber.   

Billed as a “back to work” Budget, with key announcements addressing labour market shortages, food and drink sector businesses would have felt a sting listening to Hunt. Vacancies in food and drink manufacturing double the national average, the Food and Drink Federation called for more help following the Budget, suggesting more ‘hands-on apprenticeship support for SMEs, to ensure labour shortages aren’t a drag on growth nor a risk to the resilience of the UK’s food and drink supply chain’’  

SMEs were generally considered to be the losers from this Budget, with business rates reform and further targeted energy support for small businesses being the biggest omissions. The British Chambers of Commerce said annual revaluations could have supported increases investment in green growth. Something LogisticsUK echoed, lamenting the lack of support to help businesses with energy costs and the sector’s transition to a low carbon economy. The Federation Small Businesses added the enhanced R&D tax credit could promote innovation, but that many smaller businesses would fall outside of the threshold. So, while prized by the Trade Department as the life blood for exports, smaller businesses didn’t get the boost to get goods out there that they hoped for.  

Finally, the Budget did not address the biggest B-word in the room. The BCC said exporters faced significant challenges due to difficulties trading with the EU and made the point that “increase take up of preferences in new and existing trade agreements” was key, given many small businesses remained largely unaware of these.