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The Guardian - UK
The Guardian - UK
Business
Graeme Wearden

UK housebuilding slump eases; Treasury to regulate ESG ratings – as it happened

Jeremy Hunt National Insurance City (Geopolitical Entity) Insurance United States United Kingdom Hargreaves Lansdown NI (Organization) Office for Budget Responsibility
Houses under construction in the UK
Houses under construction in the UK Photograph: Andrew Matthews/PA

Closing post

You can keep track of the latest reaction and analysis to the budget here, in our Politics Live blog (where I’m assisting Andy Sparrow).

Here’s our news story on the chancellor’s big day:

And our round-up of the key points:

We’ll be back tomorrow….

Updated

The Budget

As forecast, Hunt did indeed cut national insurance by 2p in the pound, and freeze fuel duty, and delay a rise in alcohol duty.

He also confirmed confirms non-dom tax status will be “abolished”, along with a tax on vaping, the scrapping of the furnished holiday lets regime.

We’re also getting a Brit ISA, to encourage investment in UK assets, while the high income tax charge on child benefit is rising too:

Track the Budget live, here

Jeremy Hunt is starting to deliver the budget statement now.

He’s promising to deliver “a Spring Budget for long term growth”.

We’re live-blogging it here, in Politics Live:

Treasury to regulate ESG ratings providers

The Treasury has just announced that it intends to introduce regulations for the providers of Environmental, Social, and Governance (ESG) ratings.

This follows concerns from investors that ‘greenwashing’ meanas some investments are being billed as environmentally friendly, or virtuous in other ways, when they don’t deserve the label.

The Treasury says:

As announced by Chancellor of the Exechequer Jeremy Hunt at Spring Budget 2024, the government will regulate the provision of ESG Ratings, where these assessments of ESG factors are used for investment decisions and influence capital allocation.

This will improve clarity and trust in ESG ratings. A full consultation response and legislative steps will follow later this year.

Hunt hasn’t announced this yet, of course, but it’s something to watch out for….

More details here.

Jeremy Hunt has headed to the Commons ready for the budget statement at 12.30pm, once Prime Minister’s Questions is over:

Resolution Foundation’s Torsten Bell predicts there will be a “massive row” if national insurance rates (paid by workers but not pensioners) are cut, but income tax (paid by both groups) are not….

The Times’s Steven Swinford has a breakdown of the measures expected in the budget today….

Vox Populi, Vox Dei and all that:

Paula Bejarano Carbo, economist at research institute the National Institute of Economic and Social Research, points out that UK living standards are lower than before the Covid-19 pandemic hit:

“Today’s Spring Budget is taking place against a backdrop of low economic growth, as seen most notably by GDP per head being lower in the last quarter of 2023 than just before the pandemic (2019 Q4).

While increasing real wages have improved conditions for many households in recent months, long-term economic prospects will remain weak without growth-enhancing fiscal policies, such as a commitment to increasing public investment. We therefore hope today’s Budget focuses on the long-term, rather than pre-election giveaways.”

Updated

Hunt: “Great budgets change history”.

Jeremy Hunt has released a video ahead of today’s budget address, in which he declares that “great budgets change history”.

The chancellor says:

The bit of history I want to change is to show people it is possible, if we stick to a plan through all the ups and downs, though all the challenges, to have healthy growth, good public services and to bring down taxes.

I think that’s what people really want to hear. It’s a message of hope.

However, the UK economy is currently in a technical recession (having shrunk slightly in the second half of 2023), the public think services are in bad shape across the board, and the freezing of tax thresholds means millions are paying more tax thanks to fiscal drag.

Updated

Musk drops to third in world's richest list

Jeremy Hunt will deliver the budget in a week where global stock markets have been a little volatile.

This morning, the UK’s FTSE 100 index is slightly higher (+0.3%), while the smaller, more UK-focused, FTSE 250 is up 0.75%

Yesterday, major US tech stocks had a wobble, knocking the US Nasdaq index down 1.6%.

Tesla lost almost 4%, pushing Elon Musk down to third on Bloomberg’s list of billionaires (where the top 11 all became poorer yesterday), behind Jeff Bezos and. Bernard Arnault.

This leaves Musk worth just $192bn, as he reportedly ponders whether to provide financial backing to Donald Trump for this year’s US presidential election:

The City will be eager to see the latest economic forecasts from the Office for Budget Responsibility today, says Lindsay James, investment strategist at Quilter Investors.

James also doesn’t believe the budget will have much impact on the opinion polls (where the Conservatives are trailing):

“Ahead of today’s Spring Budget, it has been widely reported that a 2p cut in National Insurance is due to be announced at a cost of £10 billion, with cuts to income tax likely to be unaffordable. This would limit the scope of any further cuts given the estimated £13bn of headroom the Chancellor has to play with.

“While this cut would be welcome news to hard-pressed taxpayers, in the context of frozen tax thresholds and other planned tax rises in the years ahead in areas such as stamp duty land tax, the tax burden is still on track to exceed all-time highs. Meanwhile, public services continue to be a source of frustration for much of the electorate.

“A key area of focus today will be the updated OBR forecasts, particularly in light of the recent falls in both inflation and growth. With spending headroom having been created largely due to falling interest rates over the forecast period, this may be an early sign of light at the end of the tunnel. Whether this can come in time to limit electoral damage for the Conservatives remains to be seen, but with talk of a May election date, today’s budget seems unlikely to have much impact on existing polls even if, for now at least, there is a small benefit for our wallets.”

Confidence among UK builders has picked up, reports Max Jones, director in Lloyds Bank’s infrastructure and construction team:

“The mood music surrounding the sector has become more upbeat in recent weeks, with healthy infrastructure pipelines a common theme coming out in our conversations with contractors.

While inflation remains sticky, the industry managed well through its peaks and there’s a feeling of confidence it will move in the right direction for the rest of the year.

Looking to longer term planning, contractors are ramping up investing in the skills needed to ensure they can deliver on the demand for projects key to decarbonisation. Those that invest today will be best placed to reap the rewards of the net zero transition.”

Conditions in the UK construction sector should improve this year, predicts Thomas Pugh, economist at RSM UK, unless the Budget destabilises the situation.

Following this morning’s construction PMI report, Pugh says:

‘The gradual recovery in the construction industry continued in February, despite the exceptionally wet weather, driven by an improvement in housebuilding. And there are valid reasons to expect things to pick up in the second half of this year. House prices have started rising again and there is a tentative recovery in the housing market that should accelerate into the rest of this year as interest rates start to fall in the summer, assuming there are no misadventures in the Budget this afternoon. All this should support housing construction.

‘At the same time, lower inflation and tax cuts will drive increases in real wages further supporting housing affordability. What’s more, lower interest rates, the continued return of office working and stronger business confidence will help commercial development.

‘There was a little sign that the crisis in the Red Sea is hampering construction efforts with the suppliers’ delivery times index falling to 50.6, indicating that it is becoming harder to get materials, but this is still far above the levels reached during the pandemic-induced supply chain crunch, suggesting that it is not having much of an impact on the industry.

‘Overall, the first half of this year will remain tough, but there are clear signs that the industry is recovering and the outlook is brighter for the second half of 2024 and into 2025.

UK construction sector stabilises as housebuilding slump ends

Just in: Activity in the UK’s construction sector contracted slightly last month, while the downturn in housebuilding is bottoming out.

In a new healthcheck on the economy ahead of today’s budget, demand conditions across the UK construction sector have improved, due to a pick-up in new orders.

The latest poll of purchasing managers at UK building firms has found that, in February:

  • Total activity fell only fractionally as house building stabilises

  • New work rose for first time since July 2023

  • Business optimism remained most upbeat since January 2022

All three main categories of construction activity saw a near-stabilisation of business activity in February, data firm S& Global reports.

Housebuilding, which has been contracting in recent months, saw the biggest turnaround since January. That may show that hopes of interest rate cuts this year are helping the sector.

The PMI index for homebuilding rose to 49.8, up from 44.2, nearly back at the 50-point level that shows stagnation.

But the commercial property sector was more subdued, with construction companies typically citing hesitancy among clients and constrained budget setting.

Tim Moore, economics director at S&P Global Market Intelligence, says:

“A stabilisation in house building meant that UK construction output was virtually unchanged in February. This was the best performance for the construction sector since August 2023 and the forward-looking survey indicators provide encouragement that business conditions could improve in the coming months.

Total new orders expanded for the first time since July 2023, which construction companies attributed to rising client confidence and signs of a turnaround in the residential building segment. Meanwhile, the degree of optimism regarding year ahead business activity prospects was the strongest since the start of 2022, in part due to looser financial conditions and expected interest rate cuts.

Updated

UK businesses may not be top of Jeremy Hunt’s priorities today – after all, they can’t vote.

But firms are hoping to get something out of the budget – with some pressing the chancellor to drop a planned rise in business rates next month.

Back in the autumn statement, Hunt froze business rates for small businesses in England again, and kept a 7% reduction for retail, hospitality and leisure firms, but decided the standard multiplier (setting business rates for larger properties) would rise in April by September’s inflation reading of 6.7%.

John Webber, Head of Business Rates at Colliers, warns that firms could collapse unless the burden is eased:

“The Chancellor must cancel the business rates rises due in April for all businesses when he announces his Spring Budget next week, or the High Street will be put under even greater threat than it is already.” says

“If the Chancellor does not take action to reduce this rates burden, we will see more retail chains going into administration. Retail, Leisure and Hospitality Relief may have provided a temporary reprieve to the small shopkeeper or independent restaurant but gives no help to the big retail and leisure chains who are the anchor tenants in so many town centres and retail spaces and provide the opportunities for jobs.”

The flurry of pre-announcements and leaks ahead of today’s budget are quite a contrast with decades gone by.

Back in 1947, Labour chancellor Hugh Dalton resigned after telling a reporter some juicy details of what he was about to deliver.

On his way into the chamber, Dalton told John Carvel of The Star:

“No more on tobacco; a penny on beer; something on dogs and pools but not on horses; increase in purchase tax, but only on articles now taxable; profits tax doubled.”

Unfortunately for Dalton, Carvel got his story published before the budget speech was over, leading to his resignation.

Martin Kettle wrote in 2013 that two unusual factors led to Dalton’s indiscretion:

The first was that MPs were still sitting in the House of Lords chamber in 1947 because the House of Commons, badly bombed in the wartime blitz, was still being rebuilt. As a result the chancellor had to walk past lobby journalists on the way to the Lords, a hazard that Osborne does not have to face.

The second was that Dalton’s political minder Douglas Jay, who would normally have been on hand to fend off the journalist, had been sent on ahead to check that there was a glass of water at the dispatch box for Dalton during his speech.

The incident had a modern-day repeat eleven years ago, when the London Evening Standard tweeted an image of its front page containing the main announcements prior to George Osborne’s budget statement to parliament…

Economist: tax cuts unlikely to close poll gap against Labour

Jeremy Hunt has “played it safe” since taking the reins from Kwasi Kwarteng 17 months ago, says Kallum Pickering, senior economist at Berenberg bank.

Pickering expects Hunt to stick to his strategy of gradually lowering government spending as a share of GDP.

But, he adds, it’s unlikely that modest tax cuts will help the Conservatives close their poll gap against Labour, “who remain on track for a landslide”.

In a research note, Pickering estimates that Hunt probably has wiggle room of around £20bn-25bn of fiscal headroom, below the. £29.7bn of GDP-adjusted room that past chancellors have aimed for since the OBR was established in 2010.

But the chancellor can’t really spend all that headroom, he says:

To retain credibility, Hunt will need to leave at least some headroom.

The UK also faces “lasting fiscal challenges”, Pickering adds:

Since Hunt became chancellor in October 2022 in the wake of the disastrous Liz Truss and Kwasi Kwarteng September mini-budget, which triggered a serious bout of gilt market turmoil and badly hurt the UK’s credibility, he has played it safe and repeatedly cautioned against risky borrowing.

As a result, we expect Hunt to stick to the broad fiscal direction he has set out in all previous plans. That is, a gradual reduction in government spending as a share of GDP alongside a gradual increase in taxes in order to reduce government borrowing to a sustainable level.

The plan involves modest increases in stamp duty and corporation taxes as well as tax creep on income as earnings rise but tax brackets remain largely unchanged, alongside restrained spending growth on public services.

Pickering also cautions that tax cuts will probably not dramatically change the economic outlook for the UK, and could encourage the Bank of England to keep interest rates high for longer.

[As the chart above shows], nominal domestic spending (a proxy for demand) has been rising solidly but due to COVID-19 and war-related supply shocks, the UK has struggled to meet demand with sufficient supply – as indicated by stalling real GDP

Better economic performance hinges on a recovery in supply. Tax cuts would boost demand when the situation for households is already improving. Real wages are rising and the labour market is strong.

If the Bank of England judges that tax cuts add to inflationary pressures, policymakers may be inclined to cut rates by less this year – de facto neutralising the impact of tax cuts.

The budget: What the papers say

Several newspapers splash on the expectations of a 2p cut in national insurance rates in today’s budget.

The FT say the £10bn tax cut will be at the core of the budget:

While The Times and the Express both point out that a new 2p cut, on top of the once that was implemented in January, are worth a combined £900 on average.

The i say Labour fear a political trap – if they win the next election, they could be forced to announce spending cuts within weeks of taking office….

… while the Telegraph highlight speculation that the election could be called soon:

And The Guardian point to worries that voters will punish the government for cutting services rather than rewarding them for lowering taxes – especially if the chancellor cuts the already lean forecasts for departmental spending after the election.

Controversially, Hunt is preparing to defy economists’ warnings of an impending public services crunch and reduce his forecasts for departmental spending after the election.

The plans he set out in November assumed departmental budgets would rise 1% above inflation each year after the election, all of which would be soaked up by protected departments such as health and defence. However, the chancellor is set to reduce that figure to just 0.75%, meaning unprotected areas such as justice and local government would face cuts of up to 20% over the course of the parliament.

The plans have sparked concern among some in the Tory party, who point to a series of polls showing that voters would prefer higher public spending and higher taxes than the promise of immediate tax cuts.

You can get up to speed ahead of the budget, with our wrap-up of five key charts showing the state of the UK economy:

Here’s a couple to whet the appetite:

Reeves: Hunt can't undo Conservative's 'economic vandalism'

Rachel Reeves, Labour’s Shadow Chancellor of the Exchequer, has accused the government of committing economic vandalism over the last 10 years.

Speaking ahead of today’s budget, Reeves says:

“This Budget should be the final chapter of fourteen years of economic failure under the Conservatives that has left Britain worse off.

The Conservatives promised to fix the nation’s roof, but instead they have smashed the windows, kicked the door in and are now burning the house down.

Taxes are rising, prices are still going up in the shops and we have been hit by recession. Nothing the Chancellor says or does can undo the economic vandalism of the Conservatives over the past decade.

The country needs change, not another failed Budget or the risk of five more years of Conservative chaos.

Under Keir Starmer’s leadership, the Labour Party has changed and is now the party of economic responsibility. Only Labour has long term plan to deliver more jobs, more investment and to make working people better off.”

The chancellor will also expected to freeze taxes on beer, wine and spirits until next February.

Booze duty is currently due to rise in August; the Sun says another six-month pause is “a win for our Save Our Sups campaign”, adding:

Fuel duty will also be frozen but it’s bad news for smokers, who face stumping up a record £16 a packet and a new tax on vapes.

Updated

FT: Hunt to scrap “non-dom” regime

The Financial Times reports this morning that Jeremy Hunt has decided modernise the colonial-era “non-dom” regime.

Ditching the non-dom regime – a move that could potentially raise up to £3bn – has been a policy of the Labour Party for some time. Hunt has previously criticised the idea of abolishing it.

But …the FT says that the chancellor is looking to scrap the two-century old concept of domicile. They report:

Hunt will modernise the system, replacing the concept of domicile in tax with a statutory residence test that would define who benefits from a new system of tax privileges.

He will also encourage wealthy people to bring their foreign-held assets and money to the UK. Tax experts have long complained the current regime is complicated and disincentivises non-doms from bringing wealth into the country, as they are taxed when they do so.

Back in November 2022, Hunt argued that the non-dom system was good for the UK, as it encouraged the super-wealthy to live and spend here, and that abolishing it could “damage the long-term attractiveness of the UK”.

Updated

Introduction: City braces for Budget

Good morning, and welcome to our rolling coverage of business, the financial markets and the economy.

Eighteen months on from the mini-budget chaos, City investors are hoping for a calmer day today as Jeremy Hunt prepares to present this year’s major fiscal event.

Fortunately, a repeat of the market chaos of September 2022 is highly unlikely; while there may be tax cuts announced today, the government is sticking to its (criticised) fiscal goal of showing debt falling in five years time.

Crucially too, the government has also worked with the independent Office for Budget Responsibility (a critical step skipped by Kwasi Kwarteng), who will give its verdict once Hunt finishes speaking in parliament today. That should help prevent a crash in the bond market, or in sterling, today.

As we covered yesterday, a 2p cut in national insurance rates are expected to be the centre piece of the budget today, as Hunt tries to increase the supply of labour in the economy, and the supply of voters to the Conservatives (Tory MPs, though, would prefer a more eye-catching, but pricier, cut to income tax).

Lowering NI by another 2p, on top of the 2p cut last autumn, will save the average worker another £450 – meaning Hunt can say he’s cut tax bills by £900 on average.

Sarah Coles, head of personal finance at Hargreaves Lansdown, wasn’t too impressed by yesterday’s reports of NI cuts, saying:

It wouldn’t be so much a rabbit pulled out of a hat as a slightly tatty-looking ferret dragged from a box, labelled ‘rabbit’. An income tax cut has been discussed for well over a year.

A National Insurance cut would be far better than nothing, but it would be a scaled-down, less attractive option. Jeremy Hunt would just have to hope it didn’t bite.

The decision to freeze income tax thresholds is biting taxpayers; this fiscal drag means more taxpayers are being pulled into paying tax, or into paying tax at a higher rate.

Calculations by the Resolution Foundation show that only those paid between £27,000 and £59,000 a year will be better off as a result of both the autumn statement and Wednesday’s budget, once the freeze in thresholds are accounted for. Those paid £16,000 will lose almost £500 a year, as will those receiving more than £60,000.

Hunt needs to keep the City onside, as a negative reaction from markets will increase the cost of borrowing for the government.

Hal Cook, senior investment analyst at Hargreaves Lansdown, warns that the market for UK government debt – or gilts – has been weakening in recent weeks, pushing up the cost of borrowing:

“Gilt markets have been under pressure for some time, due to the combination of high inflation, increasing interest rates, higher levels of government bond issuance post Covid and the Bank of England selling its gilt holdings back to the market.

This has made UK gilts less attractive investments compared to cash and the increased supply has also worked against gilt prices.

This increase in borrowing costs has eaten into the chancellor’s fiscal headroom – the amount he can spend without breaking his fiscal rules; it’s thought to be around £13bn.

The chancellor is also expected to extend the fuel duty freeze, at a cost of £5bn, which will support the wealthiest.

Economists have warned Hunt against making pre-election cuts to tax and spending in the budget, fearing that pre-election giveaways could backfire.

Tax rises are also expected today; options include introducing a levy on vaping products, increasing taxes on short-term holiday lets, extending the energy windfall tax and increasing taxes on business-class flights.

Hunt has also reportedly considered scrapping Britain’s non-domiciled tax rules, which currently allow foreign domiciled nationals resident in Britain to earn money from capital abroad without paying UK tax on it for up to 15 years.

As he presides of an economy currently in a recession, Hunt is expected to present today’s measures as an effort to economic growth. He’ll say:

“Conservatives know lower tax means higher growth. And higher growth means more opportunity and more prosperity….

“Instead of going back to square one, our plans mean more investment, more jobs, more productive public services and lower taxes.”

But his fiscal calculations may also be based on tough limits to public spending after the election, which would put unrealistic pressure on services.

Sanjay Raja, Deutsche Bank’s chief UK economist, warns that the public finances face “big challenges”.

The macro backdrop will likely prove challenging for the Chancellor. A weaker economy will hamper his ability to spend meaningfully in the Spring Budget – despite lower market rate expectations. Falling inflation too will limit the impact of fiscal drag on the Chancellor’s coffers.

Challenges around spending cuts pencilled in over the medium-term could also prove unsustainable.

The agenda

  • 9.30am GMT: UK construction PMI for February

  • 10am GMT: Eurozone retail sales for February

  • 12.30pm GMT: Jeremy Hunt to deliver the UK budget statement

  • 1.15pm GMT: ADP survey of US private sector employment

  • 1.30pm GMT: Office for Budget Responsibility to publish its Economic and fiscal outlook

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