Jeremy Hunt made a dash for growth on Wednesday as he hailed a boost to Britain’s short-term economic outlook putting it on course to avoid a recession this year.
In his first Budget, the Chancellor also trumpeted inflation expected to fall sharply from just over ten per cent to around three per cent by the end of the year.
As spring arrives, he lifted some of the economic gloom hanging over the UK as he unleashed a carrot-and-stick drive to increase Britain’s workforce and business investment to ramp up economic growth.
“Today the Office for Budget Responsibility forecast that because of changing international factors and the measures I take, the UK will not now enter a technical recession this year,” he said.
“They forecast we will meet the Prime Minister’s priorities to halve inflation, reduce debt and get the economy growing.
“Today we face the future with extraordinary potential.”
GDP, the nation’s output, still fell, by 0.2 per cent this year, but far less than the drop of 1.4 per cent predicted in the autumn, and a big enough improvement to avoid a recession which is defined as two consecutive quarters of negative growth.
Higher tax receipts and lower spending on some schemes such as the Energy Price Gurantee, after the sharp fall in the cost of gas, have boosted the Treasury’s coffers.
The economy is then set to grow by 1.8 per cent in 2024, a figure which will raise hopes among Tory MPs of significant, pre-election tax cuts, which some of them are demanding now.
However, forecasts for the two following years were down.
In a further sign of possible tight public finances in coming years, the Chancellor’s fiscal headroom is set to fall from just over £9 billion to about £6 billion towards the end of the forecasting period.
Borrowing was expected to peak at around £150 billion in 2022/23, some six per cent of GDP, but to be down to below three per cent of it in 2025/26, which would meet one of the Chancellor’s fiscal targets.
Having stabilised the economy after the chaos sparked last September by Kwasi Kwarteng’s “mini budget,” Mr Hunt unveiled his “Budget for Growth” to get hundreds of thousands of people back into work, boost business investment and support new high-growth industries of the future.
“We are following the plan and the plan is working,” the Chancellor said.
However, his fiscal statement was taking place on the day of a wave of strikes by junior doctors, teachers, Tube workers and civil servants.
He added: “We will continue to work hard to settle these disputes but only in a way that does not fuel inflation”
He did not announce new money to resolve the dispute but unveiled some measures to ease the cost-of-living crisis while also stimulating growth.
Childcare
The Chancellor sought to encourage more parents into jobs with a multi-billion pound new package of childcare support.
The reforms include 30 hours of free childcare for all under-5s from the moment maternity care ends, where eligible, and more funding for nurseries and relaxing staff to children ratios.
Back to work
Hundreds of thousands of over-50s, long-term sick and disabled, and benefits claimants are also being encouraged into the workplace.
Skills bootcamps will be expanded by 8,000 places per year in 2024-25, up from 56,000, teaching people new trades.
Mr Hunt took the axe to the Work Capability Assessment which is used to decide eligibility for sickness benefits.
Jobcentre work coaches will be given extra training to ensure they apply Universal Credit sanctions “effectively”, including for claimants who do not look for or take up employment offers.
Construction
The Chancellor expanded the shortage occupations list to include construction workers. However, there will be disappointment in the hospitality sector that the scheme is not being relaxed for it as it struggles to find workers.
Pensions
The Chancellor reformed the pension system to encourage more senior doctors to stay in the NHS, as well as other highly-paid professionals.
Taxes
Taxes will continue to rise for millions of workers through a series of so-called “stealth taxes”, including freezing the thresholds above which people start paying the 20p basic rate of income tax and the 40p higher rate until 2028, at £12,570 and £50,270 retrospectively.
The Institute for Fiscal Studies estimates that this will mean around an extra £500 of tax a year for many basic rate tax payers, as inflation and wages rise, and some £1,000 for many higher rate payers.
Energy bills
Mr Hunt also announced that the Energy Price Guarantee will be kept at £2,500 for an extra three months, from April to June, saving a typical household £160.
Business
Corporation tax will rise as planned from 19 per cent to 25 per cent in April, despite warnings from business chiefs and some MPs that it will damage Britain’s competitiveness.
The “superdeduction,” a two-year measure offering 130 per cent tax relief on companies’ purchases of equipment, was also scrapped.
But it was replaced by a series of other tax reliefs for firms investing in their facilities, less generous than the superdeduction but still thought to be worth some £8 billion.
Investment zones
Mr Hunt announced 12 Canary Wharf-style high growth investment zones, which could cost as much as £1bn, to accelerate growth and boost the government’s levelling up agenda, but none were so far expected in London.
Green economy
In the race to put Britain at the front of the transition to green energy, Mr Hunt trumpeted £20 billion of investment over the next 20 years to transform carbon capture technology and help to create up to 50,000 highly skilled jobs.
A competition is being launched to deliver small modular nuclear reactors.
Whitehall
Defence spending is being boosted by £5 billion over two years, and a goal to raise defence spending to 2.5 per cent of GDP but by no set deadline.
While Whitehall departments’ budgets will rise in the short term, many of them outside of defence and health face a tight squeeze after the next election.
Investment zones
The pencilled in rise in fuel duty was scrapped, and the 5p a litre cut kept.
Alcohol reforms will be introduced in August, with duty based on strengths and going up in line with inflation, though some help was offered to pubs through the levy on draught beer.
Mr Hunt said: “Today, I will do something that was not possible when we were in the EU and significantly increase the generosity of Draught Relief, so that from 1 August the duty on draught products in pubs will be up to 11p lower than the duty in supermarkets, a differential we will maintain as part of a new Brexit pubs guarantee.”
Tobacco duty will rise at least in line with inflation.
Sir Keir Starmer accused the Government of trapping Britain in a “doom-loop of low growth, higher taxes and broken public services”.
