Jeremy Hunt has said he is “proving the doubters wrong” as he used a stronger than expected economic performance to help fund new tax breaks for business investment and a drive to get people back into the workforce.
Setting out £22bn of higher spending and tax breaks in the next financial year, the chancellor said the British economy would avoid a technical recession in 2023 with inflation falling by half. However, the economy is still expected to shrink this year.
In an attempt to keep older workers from retiring early, Hunt announced a surprise decision to scrap the £1m cap on tax-free pension savings, saying: “No one should be pushed out of the workforce for tax reasons.”
Labour said it would benefit only the 1% with the biggest pension pots.
The chancellor said he would reboot Britain’s faltering economy with a focus on growing the workforce with targeted support for working parents, over-50s and those unable to work because of health issues and disabilities.
Those measures include:
In England, 30 hours of free childcare for children of working parents aged nine months and over from 2025.
Increasing the tax-free allowance for pensions from £40,000 to £60,000 a year as well as abolishing the tax-free cap.
Abolishing the work capability assessment, allowing those with health problems to seek work without losing benefits.
However, sanctions for those seeking work will be tightened, including those working less than 18 hours a week.
Hunt’s second big move was to incentivise business investment, with up to £9bn a year in tax reliefs for companies making productivity-boosting investments, in an effort to bolster long-term economic growth.
It comes after furious lobbying from company bosses and backbench Conservative MPs, worried over a sharp rise in corporation tax from April from 19% to 25%. Hunt said the regime of “full expensing” would last for three years, with the intention to keep the tax break permanently.
Saying it would foster an “enterprise economy” in the UK, he argued the changes would give the UK the “best investment incentives of any advanced economy”.
He said: “We tackle the two biggest barriers that stop businesses growing, investment incentives, and labour supply.
“Today we build for the future, with inflation down, debt falling and growth up. The declinists are wrong and the optimists are right.”
Paul Johnson, the director of the Institute for Fiscal Studies, said the chancellor’s measures were the “latest in a long line of changes and temporary tweaks”. Overall, he said the budget included several “sensible” measures, but he warned the chop and change approach to business tax showed “there’s no stability, no certainty, and no sense of a wider plan”.
Hunt outlined his plans for the country’s finances against a backdrop of increasing turbulence in global financial markets as banking shares were rocked by concerns about Credit Suisse, one of Europe’s biggest lenders, extending days of turmoil triggered by the collapse of the US lender Silicon Valley Bank.
However, updated forecasts from the Office for Budget Responsibility (OBR), the government’s tax and spending watchdog, showed the economy would still shrink by 0.2% in 2023, even though it would avoid two consecutive quarters of contraction – the technical definition of a recession.
In a well-trailed budget statement, the chancellor said his measures would bring down inflation while “helping people struggling during tough times”.
The OBR said inflation was forecast to fall by more than half, from a peak of 10.7% last autumn – the highest rate since the early 1980s – to 2.9% by the end of the year, in a widely expected upgrade after estimates made in November.
The government will freeze fuel duty for motorists, as well as beer duties, alongside extending energy support. Hunt said the combined impact reduced inflation by almost three-quarters of a percent this year.
Hunt said his measures were designed to encourage people back to work after a dramatic fall in employment among over-50s since the Covid pandemic, which had left businesses already affected by Brexit grappling with chronic staff shortages.
Answering calls from business groups to help parents with childcare costs to encourage mothers to return to work or increase their hours, Hunt said the government would expand existing support for preschool children to offer 30 hours of funding for one- and two-year-olds, at a cost of £4bn.
“Today we deliver the next part of our plan, a budget for growth,” Hunt said. “Not just the growth that comes when you emerge from a downturn, but long-term sustainable healthy growth that pays for our NHS and schools, and provides jobs for younger people.”
In a widely expected move, the government earlier on Wednesday confirmed that its energy price guarantee supporting households would continue to cap the typical annual gas and electricity bill to £2,500 a customer until the end of June.
Confirming several widely trailed measures, the chancellor pledged to create 12 investment zones in eight areas, including the West Midlands and the north-east, “to drive business investment and level up” the country, each backed with £80m of government funding.
Hunt announced a budget designed to stabilise the economy after the fallout from the disastrous Liz Truss/Kwasi Kwarteng mini-budget in September. But Hunt’s budget was in danger of being overshadowed as fears for the banking sector gripped the City of London.
In London, the FTSE 100, Britain’s blue-chip share index, slumped by 2.5% to its lowest level since last December. Trading in the shares of some of Europe’s biggest banks, including BNP Paribas, Société Générale and UniCredit, was briefly halted and restarted as the speed at which their stock prices fell triggered automatic circuit breakers.
The sell-off was prompted when Credit Suisse’s largest investor, Saudi National Bank, said it could not provide the Swiss bank with more financial assistance because of regulatory rules.
