Chancellor of the Exchequer, Jeremy Hunt, has revealed his spring Budget this afternoon as the Government continues with its plans to bring down inflation and boost the economy.
One of the first things announced by Hunt was that the UK will now avoid a recession this year, despite one being forecasted last Autumn. The Chancellor says that the IMF has confirmed that the UK economy is on the right track and that it is “proving the doubters wrong.”
The threat of recession is also set to get further away in the coming years. Current forecasts indicate that the UK economy will grow by 1.8% in 2024, 2.5% in 2025, 2.1% in 2026, and 1.9% in 2027.
Inflation to fall
In further good economic news, Hunt told a packed House of Commons that inflation had peaked, and it was due to fall to 2.9% by the end of 2023. Last year the Office for Budget Responsibility (OBR) predicted that the average inflation rate in the UK would be 7.4% in 2023. With a figure of 2.9% now predicted for the end of 2023, the economy is certainly performing better than expected.
On the topic of inflation, Hunt claims that it is the “root cause” of the widespread strikes that have been seen across the country over the past six months. He says that he is determined to resolve these disputes but not in a way that will “fuel inflation.”
Energy Price Guarantee extension
The Energy Price Guarantee, which was first announced in October 2022, means that the average family household in the United Kingdom spends £2500 a year on energy bills. This was set to expire in April with many households facing price hikes, however, it has now been extended to June.
The £400 support payment from the Government, however, isn’t going to be extended or renewed meaning that many households will experience a price hike with the final payment of that particular policy coming at the start of April.
For the four million UK households with prepayment meters, their charges will be brought in line with comparable direct debit charges to avoid the poorest households in the UK from paying higher than everyone else.
One of the most notable things announced by Hunt this afternoon is that free childcare is going to be expanded to cover all children over the age of nine months from September 2024. At the moment, working parents in England are eligible for 30 hours of free childcare per week for three and four year old but have to pay high fees for younger children.
The news will be of huge relief to parents who are often forced to ditch their careers to look after their young children due to extortionate fees. The UK has some of the highest costs in the world for childcare, but the Government hopes that this new scheme will result in more parents returning to work as they seek to boost the economy.
To support working parents further, Hunt announced funding for schools and local authorities to increase the supply of “wraparound care.” He wants all schools in the country to be able to offer this service from September 2026, which will allow parents to drop their school-age children off at 8am and pick them up at 6pm.
Families on universal credit will also now get childcare support upfront, instead of having to claim it back while the £646-a-month per child cap which people on universal credit can claim will increase to £951 for one child and £1630 for two.
Other key announcements
In a packed budget, Hunt also announced the following:
- Corporation tax for businesses will increase from 19% to 25%.
- £11 billion will be added to the UK’s defence budget over the next five years.
- £200 million will be invested in local regeneration projects around England.
- £63 million will be given to local leisure centres to keep them afloat.
- £200 million will be invested in local regeneration projects around England as part of levelling up.
- Universal credit sanctions be applied more rigorously.
- The pensions annual tax-free allowance will rise from £40,000 to £60,000.
It’s fair to say that the first budget of 2023 is far less bleak than the final budget of 2022. The main headline to come from the announcement is the fact that the UK is going to avoid a recession and that the economy is forecasted to grow over the next five years.
The biggest policy shift has to be the childcare support provisions announced by Hunt, which he cleverly waited until the end to announce. The average cost of putting a child under the age of three in a nursery for a day is currently around £55. This means that parents who usually need full-time childcare every day of the month will now save over £12,000 a year.
One notable disappointment with the Budget is the fact that very little is being done to bring energy costs down. While the price guarantee is being extended for three months, all that does is push the inevitable price hike further down the road.