Chancellor unveils ‘Budget for growth’ as UK set to escape recession
Chancellor Jeremy Hunt has unveiled what he called a “Budget for growth” – aimed, he said, at getting more people back into work.
Hunt opened up his hour-long Budget announcement by saying: “In the face of enormous challenges, the British economy is proving the doubters wrong. Last Autumn, we took the difficult decision to deliver sound money. Inflation has peaked and mortgage rates are down.”
This Budget’s headline takeaway came in the form of £4bn package of free childcare for one- and two-year-olds in England which will provide an extra 30 hours of free care, with an increase in funding by £288m by 2024-25 for the current programme of free childcare for three-year-olds.
However, the first part of these plans won’t come into being until September 2024 – and some parents won’t receive the full benefits until a year after that.
Hunt pointed out that the Office for Budget Responsibility (OBR) forecasts that the UK will not now enter a technical recession this year. He said: “The forecast says we will will meet our targets of halving inflation, reducing debt and get the economy growing. We are following the plan and the plan is working.”
To huge cheers from his backbench allies, the Chancellor revealed that the OBR has forecast that UK inflation will fall from 10.7% at end of last year to 2.9% by end of 2023.
But there were few major changes affecting businesses. Zoe Roberts, tax partner at BHP in Sheffield, said, “I was a bit underwhelmed. Most of it had been pre-announced.”
Hunt also unveiled what he called a “Brexit pubs guarantee”, the outcome of which will see the duty on average strength daft beer sold in UK pubs frozen. Hunt added: “British ale is warm but duty on a pint is frozen.”
Meanwhile, fuel duty will remain frozen for another year and the 5p cut in the price of petrol and diesel will remain in place. This, said Hunt, will save the average driver £100 a year.
Driving down debt is also one of the Government’s priorities. He said that borrowing will fall to 1.7% in 2027/28 according to forecasts by the OBR.
Turning to growth, Hunt said: “Today we face the future with extraordinary potential. We are the best country to invest in and declinists are wrong about our country.”
Hunt added that the OBR forecast shows that the UK will not enter recession and the economy will contract by ust 0.2% this year and experience growth of 1.8% in 2024 and 2.5% in 2025.
The Chancellor also unveiled 12 new investment zones, calling them “bold and imaginative partnerships” in the West Midlands, Greater Manchester, the north-east, South Yorkshire, West Yorkshire, East Midlands, Teesside and Liverpool. There will also be at least one in Scotland, Wales and Northern Ireland.
Hunt also announced the gradual winding down of LEPs, with their powers and responsibilities moving to local authorities from May 2024.
Turning to Corporation Tax, Hunt announced ‘full expensing’, which will come in from 1 April, cutting tax for companies that want to invest in the UK, reducing their tax by up to 25p for every £1 they spend on plant and machinery.
“We are the only major European country with full expensing,” said Hunt. He mocked the Labour benches, saying: “The party opposite puts taxes up – we cut them.”
But Roberts, of BHP, pointed out that most companies would get 100% allowance anyway. “It’s only going to benefit companies spending more than £1m. Our manufacturing clients will be happy, but I think the devil will be in the detail.”
Earlier on Wednesday, the Treasury announced a major U-turn by announcing a three-month extension for the Energy Price Guarantee (EPG).
The EPG, which limits a typical annual household bill to £2,500, had been slated to rise to £3,000 a year at the end of April. The move means the EPG will be extended at its current figure until the end of June.
Hunt said: “High energy bills are one of the biggest worries for families, which is why we’re maintaining the energy price guarantee at its current level.
“With energy bills set to fall from July onwards, this temporary change will bridge the gap and ease the pressure on families, while also helping to lower inflation too.”