Jeremy Hunt has delivered a defiantly upbeat Budget that offered a £9bn tax break for business, an extension of free childcare and a surprise pension boost for the well-off.
The chancellor on Wednesday claimed Britain’s economy was “proving the doubters wrong”, as he announced a 100 per cent tax break for business investment to try to lift the country’s sluggish growth rate.
His first Budget also contained two big measures intended to keep people in work: a £5bn extension of free childcare in England and the controversial scrapping of the £1mn lifetime allowance on tax-free pension contributions.
Labour leader Sir Keir Starmer said the pensions tax break was a “huge giveaway to some of the wealthiest people in the country”, arguing that a high earner with a £2mn pension pot would receive a tax cut of £275,000.
While some Tory MPs continue to argue for wider tax cuts — Britain’s tax burden is set to rise to a postwar record of 37.7 per cent of GDP in 2027 — most lavished praise on Hunt at a private meeting after the Budget.
Hunt arrived in the House of Commons with new official forecasts showing that the UK would avoid a technical recession in 2023. “The plan is working,” he claimed. “The declinists are wrong and the optimists are right.”
During his one-hour statement, Hunt insisted he had restored economic stability after the chaos of the Liz Truss premiership last year, and that inflation was under control and confidence returning.
Hunt welcomed new forecasts from the Office for Budget Responsibility, which showed an improved outlook for the UK economy, partly as a result of the chancellor’s measures to get people back to work. But the fiscal watchdog said a bigger effect came from its assumption of lower natural gas prices, limiting the cost of living crisis.
The detail of the forecast shows that instead of contracting 1.4 per cent this year, the economy will shrink only 0.2 per cent, before recovering to an annual growth rate of 1.9 per cent by 2027.
Hunt’s measures amount to a giveaway of £20bn a year over the next three years before falling to £10bn a year. As a result of the handouts and lower growth towards the end of the forecast, public sector debt is only expected to start falling as a share of gross domestic product in 2027-28, highlighting the still precarious state of the government finances.
Hunt focused most of his fiscal firepower on tax breaks for business, which he claimed would increase UK investment and offset a 6 percentage point rise in corporation tax.
He announced a three-year “full expensing” scheme, which allows businesses to deduct 100 per cent of all plant and machinery investment immediately when calculating taxable profits. Hunt said Britain was the only major European country with such a system.
Also key to the Budget was Hunt’s promise to tackle inactivity in the British labour market, delivering a range of measures to persuade parents, the sick, disabled and over-50s to go back to work or increase their hours.
The centrepiece of his employment plan was a £5bn expansion of free childcare for one- and two-year-olds in England, an attempt to ease cost-of-living pressures, as well as helping mothers to stay in work.
Separately, the government started to open up the labour market to more foreign workers, putting construction workers on a “shortage occupation list”. Other sectors could be added later in the year.
The chancellor confirmed that he would maintain the £2,500 energy price guarantee for another three months from April, a £3bn move that will avert a springtime jump in domestic energy bills.
A cut in fuel duty from last year will be maintained and the rate frozen at a cost to the exchequer of £5bn, in the latest concession to motorists.
Paul Johnson of the Institute for Fiscal Studies questioned whether that money could have been better used to fund public sector pay deals on a day that the UK experienced its most widespread strikes in the current period of industrial unrest.
Starmer accused the government of leaving the country on a “path of managed decline”, as he argued Wednesday’s Budget “changes nothing”.
Additional reporting by Jasmine Cameron-Chileshe