Jeremy Hunt will today deliver the second major fiscal statement of his time as Chancellor amid intense pressure to cut taxes.
Falling energy prices and higher-than-expected tax revenues mean that the outlook for Mr Hunt’s Spring Budget has become a little less bleak. The Institute for Fiscal Studies, a think tank, estimates that borrowing this year and next will be £30bn less than previously expected.
But a temporary windfall from the Energy Price Guarantee does not open the door to long-term policy changes, with the Treasury consistently briefing that major tax cuts are off the table.
The IFS has warned that the Office for Budget Responsibility may still downgrade its growth forecasts, which in turn would shrink the Chancellor’s capacity to spend.
Here’s what to expect.
What time is the Spring Budget?
Mr Hunt will deliver his Spring Budget in Parliament on Wednesday 15 March. The Chancellor normally delivers his statement after Prime Minister's Questions, which typically finish at 12.30pm.
His statement will focus on the Government’s aims to halve inflation, reduce public debt and boost economic growth.
It will be accompanied by the latest economic and fiscal outlook from the OBR, the Government's spending watchdog.
Getting early retirees back to work
Mr Hunt’s primary focus with the Spring Budget will be to get Britain back to work. Excluding students, there are 6.6 million working aged adults who are classed as economically inactive. The number of people neither working nor looking for a job has jumped by more than half a million people in the last three years.
Treasury officials believe the number of people out of work is a major barrier to economic growth. Not only is it a problem for productivity, it is also fuelling inflation. A lack of staff is forcing employers to pay higher wages to attract people, which in turn is driving up prices.
Of the 6.6 million economically inactive people, more than a million people have taken early retirement.
Mr Hunt, who has personally urged over-50s who have taken early retirement to go back to work, will unveil new measures to encourage and retain older workers in the labour force.
He is expected to raise the lifetime allowance – the maximum amount that workers can put into their pension pots before they are taxed – by more than half a million pounds to incentivise retirees to keep earning.
The LTA is currently just over £1m. Sources have indicated that Mr Hunt will raise this to between £1.5m and £1.8m – closer to its previous peak.
Mr Hunt will also launch a “returnerships” programme that will offer skills training that will be tailored for the over-50s, taking previous experience into account.
The Government will add another 8,000 places per year (an increase of 14pc) to its “skills bootcamps”, which reskill people in sectors such as construction and technology.
Getting long-term sick back into work
Another 2.5 million economically inactive people are classed as long-term sick and Mr Hunt also wants to get many of this group back into work.
Mr Hunt wants to reboot the benefits system, so that long-term sick people who return to work part-time can continue claiming some benefits.
A Health and Disability White Paper, which will be published on the day of the Budget, will outline plans to scrap the work capability assessment. The move, which will be the biggest reform to the welfare system in a decade, will mean that disabled people can work without losing their benefits.
Another policy on the cards is a sick note crackdown. The Treasury has been working with the Department for Work and Pensions to change how GPs issue sick notes, with a focus on continuing work with support instead of getting signed out of the labour force altogether.
Getting parents back to work
A further 1.7 million are parents who are staying at home to look after their children. Think tanks have repeatedly flagged access to childcare as one of the most urgent and easily fixable issues that the government could target.
Mr Hunt will announce 30 hours a week of free childcare for one- and two-year-olds in England, in a policy that will cost the Treasury £4bn.
This will be a large expansion on the current system, which entitles all three- and four-year-olds to free part-time nursery education for 15 hours a week, 38 weeks a year, regardless of how much their families earn.
Mr Hunt will increase the hourly rate the Government pays to childcare providers and will give local authorities funding to set up wraparound childcare provision in schools from September 2024.
He will also make changes to childcare support for parents on universal credit so that the payments are made up front, rather than as a refund. He will also increase the maximum support by several hundred pounds.
Energy bills support
The Government’s Energy Price Guarantee, which caps energy costs for households, was scheduled to rise from £2,500 to £3,000 on April 1. Support for businesses will also become more targeted.
But Mr Hunt will keep the cap at £2,500 for another three months. This will save the average family £160 on their energy bills and will cost the Treasury around £3bn.
Mr Hunt will also reform energy bills so that families on pre-payment meters will not pay more for their energy than those on direct debit.
Households on pre-payment meters typically pay higher rates to cover the extra costs for firms managing the meters. Under Mr Hunt’s plans, this premium will be scrapped, saving four million households £45 a year on their bills from July.
Fuel duty cuts
Fuel duty is supposed to rise by RPI inflation in April, which would add 7p to the price of a litre of fuel. A temporary 5p fuel duty cut, announced by Mr Sunak in March 2022, is also due to expire this March.
These two factors combined mean the cost of fuel duty will rise by 23pc – an extra 12p per litre.
Mr Hunt will likely step in and stop this. The RPI fuel duty increase has been cancelled by every chancellor every year since 2011, making it politically difficult for the current resident of Number 11 Downing Street to back a rise.
Mr Hunt has reportedly accepted that there is “strong precedent” for continuing the freeze, and is apparently keen to continue the 5p cut as long as it is clear that inflation is falling.
These two measures combined would cost the Treasury £6bn, according to Deutsche Bank.
Public sector pay
The Government is under pressure to commit to a stronger public sector pay deal to bring an end to the continual flow of strikes that are plaguing public services. “A resolution will likely feature a stronger pay deal in 2023-24,” said Mr Raja.
At the moment, existing departmental budgets will allow for a 3.5pc public sector pay rise. Mr Hunt may go further and announce a 5pc increase. This would cost £4bn, according to Deutsche Bank.
The Chancellor will be wary of working in opposition to the Bank of England, which is raising interest rates to tame inflation and has warned that large pay settlements could fuel price rises.
However, the Treasury has reportedly concluded that a 5pc increase for the public sector would carry a “low risk” of contributing to protracted high private-sector pay growth. There is even talk of backdating the payment.
Corporation tax rise
Despite warnings from a chorus of business leaders that higher taxes will hamper growth, Mr Hunt will almost certainly forge ahead with the planned rise in corporation tax rise scheduled to take effect from April.
The change, first announced by Rishi Sunak in his 2021 Spring Budget as chancellor, will see businesses face a six percentage point increase in the corporation tax rate, which will climb from 19pc to 25pc. This is expected to net £18bn a year for the Treasury.
The full force of this tax rise will hit businesses with profits of more than £250,000.
Companies with profits of between £50,000 and £250,000 will get marginal relief.
For those with profits of less than £50,000, there will be no change – they will continue to pay corporation tax at 19pc.
Super-deduction replacement
Just as corporation tax goes up, investment incentives are scheduled to be removed. The corporation tax super-deduction, which allows businesses to cut their tax bill by 130pc of the value of qualifying investment, will end on March 31.
Mr Hunt is considering a proposal that would reduce this to 100pc. This would cost the Treasury £11bn.
It is possible that Mr Hunt may opt for temporary measures or a roadmap towards permanent capital allowances in the autumn, rather than an immediate replacement for the super-deduction.
Business leaders have warned that the tax raid is one of the biggest threats they face this year. Telecoms giant BT has said it will send Britain in a “drastically anti-investment direction” while three former chancellors have said going ahead with the rise in corporation tax will be a mistake.
Plan for business growth
Mr Hunt will announce 12 Investment Zones, which will each receive £80m in funding over five years, including tax reliefs.
Eight places in England have been shortlisted to host investment zones, including Greater Manchester, Liverpool and Tees Valley. A further four zones will sit across Scotland, Wales and Northern Ireland.
Mr Hunt will announce a £20bn investment over the next 20 years in carbon capture, as part of his drive towards net zero. Mr Hunt will use the money to back projects that will aim to store 20 to 30 million tonnes of CO2 a year by 2030. The Treasury has said this will create up to 50,000 skilled jobs.
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2023-03-15 10:35:00Z
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