The Chancellor has unveiled the latest UK Government budget. In his statement, Jeremy Hunt said the OBR had confirmed the UK would not enter a technical recession this year due to changing international factors and measures contained within the Spring Budget. He described the Spring Budget as a budget for growth, with the OBR predicting inflation would fall from 10.7% in the final quarter of 2022 to 2.9% by the end of 2023.
- Cost of Living: The Energy Price Guarantee will remain at £2,500 for the next three months while prepayment meter charges will be brought in line with comparable direct debit charges. £100m will be allocated to support the charities sector, including £10m for voluntary work on suicide prevention. Fuel duty will be frozen and the 5p reduction will be maintained for a further year, while the duty on draught products in pubs will be 11p lower than the duty in supermarkets from 1 August 2023.
- Debt Reduction: Underlying debt will be 92.4% of GDP by 2024 and this is expected to fall every year until 2027-28, with underlying debt forecast to be three percentage points of GDP lower in three years’ time than in the autumn. The OBR forecasts government borrowing will reduce from 5.1% in 2023-24 to 1.7% in 2027-28.
- Defence: £11bn will be added to the UK defence budget over the next five years and it will be nearly 2.25% of GDP by 2025.
- Productivity: 12 new investment zones will be established for areas of the UK to “catalyse new innovation clusters”, with seven of these identified in England and at least one to be developed within each of the devolved nations.
- Scotland: An additional £320m will be allocated for the Scottish Government through Barnett consequentials, with £8.6m in targeted funding for the Edinburgh festivals and £1.5m to repair the Cloddach Bridge.
- Taxation: Corporation tax for businesses will increase from 19% to 25% as planned and the Annual Investment Allowance has been increased to £1m.
- Climate Change: £20bn has been allocated for the early development of carbon capture, usage and storage, and the Climate Change Agreement scheme has been extended for two years. Nuclear power will be classed as “environmentally sustainable” which will give it access to the same investment incentives as renewable energy, and the ‘Great British Nuclear’ programme has been launched with the intention of reducing nuclear power production costs.
- Social Security: A white paper has been published on disability benefits with plans to abolish the work capability assessment and to separate benefits entitlement from an individual’s ability to work. There will be a voluntary employment scheme for 50,000 disabled people each year where the government will spend up to £4,000 per person to help them find appropriate jobs. £400m has been allocated to increase the availability of mental health and musculoskeletal resources for workers. Universal Credit sanctions will be applied “more rigorously” for those who fail to meet work-search requirements or choose not to take up a reasonable job offer.
- Childcare: A £600 incentive payment will be piloted for childminders joining the profession and funding to nurseries will increase to £204m from September, rising to £288m next year. Parents on Universal Credit will receive up to £951 for one child and £1,630 for two children per month which will now be paid upfront. 30 hours of free weekly childcare is being extended to cover children below the age of three during term time, eventually covering all children from the age of nine months; however, it will only apply to households where both parents are working. Schools and local authorities will be funded to increase the supply of wraparound care.
Responses so far from the OBR and the IFS are fairly lukewarm on the likely impact of the measures announced.
On workforce issues, the OBR says “our central estimate of the increase in labour supply as a result of the policies announced in this Budget is very uncertain, and… could be as high as 240,000 or as low as 55,000”.
On pensions and childcare, the IFS says “the childcare package is expected to only get a few tens of thousands more mothers mostly back into work. We know a lot of people don’t even take up what they’re entitled to among the three and four-year-olds” and “the changes to pension rules will make very little difference at all to the number of people in work. If you want to target something at doctors you need to sort out the NHS pension scheme.”
SUMMARY OF SPEECH
- The OBR predicts inflation will fall from 10.7% in the final quarter of last year to 2.9% by the end of 2023.
- The UK economy is expected to contract 0.2% this year. Growth in subsequent years is forecast to be 1.8% in 2024, 2.5% in 2025, 2.1% in 2026 and 1.9% in 2027.
- The unemployment rate is expected to rise by less than one percentage point to 4.4%.
- The Energy Price Guarantee will remain at £2,500 for the next three months, saving the average family a further £160.
- For households on pre-payment meters, he confirmed charges will be brought in line with comparable direct debit charges.
- To alleviate the impact of high energy costs on community facilities, he will provide a £63m fund to support public leisure centres.
- After discussions with the charities minister, their department will be given £100m to support local charities and community organisations.
- Extra £10m assigned over the next two years to support the voluntary sector to prevent suicide.
Jeremy Hunt noted alcohol duty had been frozen until 1 August and confirmed:
- From 1 August, alcohol duty on draft products in pubs will be 11p lower than the duty in supermarkets.
- Fuel duty will not be uprated in line with inflation or increased.
- For 12 months, the 5p cut will be maintained and fuel duty will remain the same.
Jeremy Hunt noted underlying debt was forecast to be 92.4% of GDP next year, then 97.3%, 94.6%, 94.8% respectively before falling to 94.6% in 2027-28. He added that with a buffer of £6.5bn, the UK Government will meet its fiscal rule to decrease debt as a percentage of GDP by the fifth year of the forecast.
- At the Autumn Statement, it was announced public sector net borrowing must be below 3% of GDP over the same period. The OBR confirmed this rule was being met with a buffer of £39.2bn.
- Borrowing will fall from 5.1% of GDP in 2023-24 to 3.2%, 2.8% 2.2% and then 1.7% in 2027-28.
- Day to day departmental spending will increase by 1% a year on average in real terms after 2024-25 until the end of the forecast period.
- Tobacco duty will be uprated.
- Gross Gaming Duty yield bans will be frozen.
- Starting rate for savings and ISA subscription limits maintained.
- A range of measures will be brought forward to tackle promoters of tax avoidance schemes.
In relation to military support, the Chancellor announced:
- £5bn will be allocated to the Ministry of Defence – £2bn next year and £3bn the year after.
- The defence budget will increase by £11bn over the next five years to nearly 2.25% of GDP by 2025. This will be raised to 2.5% when fiscal and economic circumstances allow.
- An additional £30m will be invested to increase availability of veteran housing and support.
Jeremy Hunt told the House higher business investment and tackling economic inactivity were priorities in the Budget. He said the four pillars of the industrial strategy – enterprise, employment, education and everywhere – were intended to address this.
- 12 investment zones to be created.
- Potential areas had been identified in the West Midlands, Greater Manchester, the north east, South Yorkshire, West Yorkshire, East Midlands, Teesside, and Liverpool.
- There will be at least one in Scotland, Wales and Northern Ireland.
- Each area must apply and, if successful, will be entitled to receive up to £80m worth of support
- Over £200m for high quality local regeneration projects across England.
- £161m for regeneration projects in Mayoral Combined Authorities and the Greater London Authority.
- £400m for new levelling up projects in a range of English areas.
- Second round of city region sustainable transport settlements to take place, allocating £8.8bn over the next five years.
- £200m in increased funding to help local communities deal with potholes.
- The Scottish Government will receive an additional £320m, the Welsh Government will receive £180m for Wales and the Northern Ireland Executive will be given £130m through Barnett Consequentials.
- £8.6m will be invested in targeted funding for the Edinburgh festivals and £1.5m will be granted to repair Cloddach Bridge.
- A new investment allowance worth £9bn a year will be introduced to ensure every pound investment in IT equipment or machinery could be deducted in full from profits. The OBR expected it will increase investment by 3% every year.
- A new tax credit for SME firms that spent at least 40% of total expenditure on research and development to claim back £27 on ever y£100 invested.
- Tax reliefs to be extended for film, high-end television and videogames (34%) and for animation and children’s television (39%). Current tax reliefs for theatres and orchestras to also be extended.
- The Climate Change Agreement scheme will be extended for two years to give eligible businesses £600m for energy efficiency measures.
- Up to £20bn will be invested in early development for carbon capture and storage, supporting up to 50,000 jobs and capturing 20-30 million tonnes of CO2 a year by 2030.
- Subject to consultation, nuclear energy will be classed as environmentally sustainable, giving access to same investment incentives as renewable energy.
- ‘Great British Nuclear’ will be launched to bring down costs and create opportunities across supply chains to help provide a quarter of electricity by 2050.
- The first competition for small modular reactors will be completed by the end of the year and, if viable, will be co-funded by the UK Government.
- From 2024, the regulation of medicines will be reformed to ensure medicines already approved in trusted markets such as the US and Japan will be brought to market quickly.
- In relation to AI, all nine recommendations of Patrick Vallance’s review had been accepted. An ‘AI sandbox’ will be trialled as a new means of promoting investment and the Manchester Prize will award £1m for the next ten years to leading AI research.
The Chancellor confirmed to members:
- A white paper on disability benefits reform has been published today with plans to abolish Work Capability Assessment and separate benefit entitlement from an individual’s ability to work.
- In England and Wales, a new programme will be funded called Universal Support, a voluntary employment scheme in which 50,000 places a year will be funded with up to £4,000 to find appropriate employment.
- £400m will be invested to increase the availability of mental health and musculoskeletal resources.
Children in care
- Qualifying care relief threshold will be almost doubled to £18,140
- A £3m pilot will be expanded to help people with special needs transition into the workplace.
- ASN support with a £3m pilot expansion for supported internship programme.
Universal Credit without health condition
- The administrative earnings threshold will be increased from 15 to 18 hours for those working low hours to ensure they received more support.
- The DWP’s midlife MOT strategy will be enhanced, increasing placements from 8,000 to 40,000.
- A new apprenticeship targeted at over 50s will be created, called ‘returnerships’.
- Pensions annual tax free allowance will be increased by 50% from £40,000 to £60,000.
- Lifetime allowance will be abolished.
- The lifetime allowance on tax-free pension contributions, currently £1.07m, will be abolished.
- Incentive payments of £600 will be piloted for childminders who signed up to the profession, rising to £1,200 for those through an agency
- For parents moving into work or who wanted to increase hours, childcare costs will be paid up front and the maximum which could be claimed will rise to £950 for working households with one child and to £1,630 for those with two.
- There will be an ambition for all schools to offer wraparound care from 08:00 to 18:00 by September 2026.
- The UK Government will offer 30 hours of free childcare for every child from the age of nine months, reducing childcare costs by nearly 60%. This will be introduced in stages to ensure there was enough supply, beginning with parents of two-year-olds from April 2024.
The Spring Budget 2023 has been published, along with the following accompanying documents:
- Chancellor unveils a Budget for growth [press release]
- Spring Budget 2023 [in full]
- Impact on households: distributional analysis to accompany Spring Budget 2023
- Spring Budget 2023: Policy Costings
- Spring Budget 2023: Data Sources
- Spring Budget 2023 – Disability White Paper Factsheet
- Debt management report 2023-24
- Spring Budget 2023 customs measures
- Spring Budget 2023 – Labour Market Factsheet
- Investment Zones
- Spring Budget 2023 Factsheet: Cutting & Simplifying Tax for Businesses to Invest and Grow
- Additional Tax Relief for Research and Development intensive small and medium sized enterprises
- Full expensing
- Pro-innovation Regulation of Technologies Review: Digital Technologies
- Pro-innovation Regulation of Technologies Review: life sciences (interim report)
- Highways maintenance funding allocations [update]
- West Midlands Combined Authority: “Trailblazer” deeper devolution deal
- Amendments to Corporate Interest Restriction
- Raising standards in tax advice: protecting customers claiming tax repayments: Rendering void assignments of income tax repayments
- Restriction of Charitable Reliefs to UK Charities and Community Amateur Sports Clubs
- Notes on Spring Finance Bill 2023 resolutions
- Consultation Outcomes