Jeremy Hunt has claimed Britain will become the best place to invest in any advanced economy after the chancellor put £9bn of business tax breaks at the heart of his “budget for growth”.
His first budget also included two major measures to keep people in work: a £5bn extension of free childcare in England and a shock decision to scrap the £1mn lifetime allowance on tax-free pension contributions.
Hunt arrives in the House of Commons with new official forecasts showing the UK will avoid a tech recession in 2023. “The plan is working,” he claimed. “The naysayers are wrong and the optimists are right.”
During his hour-long statement, Hunt insisted he had restored economic stability after the chaos of the Liz Truss premiership last year, with inflation under control and confidence returning.
But the chancellor has been criticized for failing in his vision of how to lift Britain out of its 15-year economic malaise, with some Tory MPs clamoring for tax cuts.
Hunt’s budget focuses on increasing the size of Britain’s workforce, tax breaks to encourage business investment, various initiatives to help new industries and increasing pensions for the better.
He 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.
A bigger impact, however, came from the fiscal watchdog’s anticipation of lower natural gas prices, which it thinks will limit life-threatening costs.
The forecast details show that instead of a 1.4 percent contraction this year, the economy will contract by just 0.2 percent before recovering to an annual growth rate of 1.9 percent by 2027.
Hunt’s measures give £20bn a year over the next three years before falling to £10bn a year. As a result, public sector debt is only expected to start declining as a share of gross domestic product in 2027-28, highlighting the still precarious position of government finances.
Under pressure from Tory MPs to cut taxes, Hunt focused much of his fiscal firepower on tax breaks for business, which he claimed would boost UK investment and raise corporation tax by 6 percentage points.
He announced a three-year 100 per cent “full costing” plan, which allows companies to offset all capital expenditure against their tax bill in the year it is spent, costing an average of £9bn a year. Hunt said Britain is the only major European country with such a system.
Business tax breaks were the biggest single spending line in the Budget so far, rising to £500mn, along with a three-year increase in tax credits for investment-intensive companies such as tech firms.
Hunt’s promise to tackle dysfunction in the British labor market was also key to the budget, with a range of measures to persuade parents, the sick, the disabled and the over-50s to go back to work or increase their hours.
The Chancellor surprised MPs by scrapping the lifetime tax-free pension allowance, currently set at £1mn; He claimed it would encourage older people to continue working. The annual allowance will rise from £40,000 to £60,000. Together, the measures will cost around £1.1bn per year.
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The centerpiece of his jobs plan was a £5bn expansion of free childcare for one- and two-year-olds in England, an effort to ease cost-of-living pressures and help mothers stay in work.
Disabled and sick people will be encouraged to go back to work through the benefits system, but will face a “stick” with the risk of sanctions if they refuse to see a work coach or undertake work.
Separately, the government began opening the labor market to more foreign workers, placing construction workers on the “shortage occupation list”; Other fields may be added later in the year.
Hunt wants to wait until the autumn before starting to introduce significant personal tax cuts, but his budget contains cash to ease pressure on households facing high inflation.
The chancellor confirmed he would retain the £2,500 energy price guarantee for another three months from April, a £3bn move that will avoid a spring surge in household energy bills.
“With energy bills set to fall from July, this temporary change will close the gap and ease the pressure on households, while also helping to reduce inflation,” Hunt said.
Fuel duty cuts from last year will be retained and rates will be frozen at a cost of £5bn in the latest concession to motorists.
Labor leader Sir Keir Starmer accused the government of leaving the country on a “path of managed decline”, as he argued Wednesday’s budget “changes nothing”.
He said that after 13 years in power, the Conservatives had left the country “in a doom loop of low growth, high taxes and broken public services”. He added: “After today we know the Tory cupboard is as empty as the salad aisle in our supermarket.”
Additional reporting by Jasmine Cameron-Chileshe
