“Today’s Budget has taken a bit of a backseat given the renewed worries about the global banking system, but the Chancellor was a bit more generous than we expected,” said Paul Dales, chief UK economist at Capital Economics.
The expectation is that the government plan to splash much more cash ahead of the general election in 2024/25.
“But with inflation still uncomfortably high, this may just provide the Bank of England with more motivation to raise interest rates further and keep them high for longer. That said, a further escalation of the global banking issues would clearly push both fiscal and monetary policy off course.”
In total the Budget had £21.9bn of giveaways, or 0.8% of GDP, versus the £18.0bn Dales had expected.
While Hunt called it a “Budget for growth” and the OBR forecast better growth in 2023 and 2024, it revised down long-term growth forecasts, with the economy now expected to be broadly the same size in 2027/28 as it was last November.
The Chancellor has a bit more wiggle room later this year and next, Dales noted: “We suspect the Chancellor may have more headroom to cut taxes/raise spending later this year… And the political motivation to prime the polls ahead of an election in 2024/25 will be growing.”
Hunt’s slight loosening in fiscal policy for the coming year will provide some small support to real GDP and inflation this year, with a bigger loosening in a year’s time providing more.
“That suggests the Bank may have to keep interest rates a bit higher for longer, although this effect could clearly be swamped by a further escalation in the problems in the global banking system that threaten to weaken UK economic activity,” said Dales. “That risk isn’t in the OBR’s forecasts.”
Yields in 10-year Gilts have fallen 25bps, driven by concerns over the global banking system and what it means for global economies, he noted.
Dales said the government and Labour both still lacks a “coherent, interconnected long-term growth plan” and “a bit of money handed out here and there now and before the election isn’t going to change that.”
2.15pm: Pensions changes ‘do nothing for most people’
On the pensions changes, Darius McDermott, managing director of Chelsea Financial Services, says the increase in annual allowance and abolition of the lifetime allowance “will be of benefit not just for those people lucky enough to have larger sums of money to invest, but also for many civil servants. Doctors, teachers, nurses, police, fire fighters – anyone on a big final salary scheme will be better off.”
He says many savers having to fund their own retirement are “unlikely to feel the benefit” of the increased annual allowance.
Alex Campbell at Freetrade sort of agrees on pensions: “The surprise removal of the lifetime pensions allowance may seem a bit meaningless for many younger workers these days.
“But it shows a clear direction of travel. We’re going to be working for longer and we should be able to continue saving into our pension without fear of incurring excess taxes when we switch into drawdown (eventually).”
As does Russell Laver, partner at EY, who says the increase in the annual pension allowance to £60,000 “will benefit high earners, it will have no impact for the majority of the UK population”.
The abolition of the lifetime allowance also “will be less beneficial for those high earners who have opted out of pensions due to previous protections and who only have a few years to retirement, as they would likely end up breaching the Annual Allowance, and will not benefit lower earners”.
The Budget does not do much for workers, including NHS staff, says Unite general secretary, Sharon Graham said: “Today the Chancellor had a chance to save the National Health Service – starting by paying NHS workers their dues.”
There “wasn’t a penny for NHS pay” in the budget, she points out.
“So while Jeremy Hunt rearranges the deck chairs for corporate Britain, workers in the real economy face a crisis.”
Despite measures on energy bills and childcare, she said Hunt did “next to nothing to address the historic cost of living crisis”, noting that real wages have fallen by 15% since 2010.
2.12pm: Over-optimism on inflation?
On the OBR forecasts of 2.9% inflation by year end, George Lagarias, chief economist at Mazars, says he is “sceptical about the forecast that inflation will fall below 3% by the end of the year.
“On the one hand, the Chancellor opts for growth; on the other, he wants to fight inflation. Clearly conflicting targets. The OBR’s inflation forecast is less than half of that expected by the majority of economists. Developed markets as a whole are expected to see year-end inflation above 5% so 2.9% in the UK is ambitious.”
He said the OBR may be right but “this is still an optimistic forecast and it is hard to see how increasing demand will help halt price growth”.
The Bank of England, as an independent institution could “become more hawkish after this budget statement, in its bid to lower demand and stem inflation so the interest rate rises may yet exceed market expectations”, he says.
2.10pm: Renewables – nuclear, carbon capture and hydrogen
Hunt’s backing for carbon capture and storage and a new nuclear programme are criticised by Friends of the Earth’s head of policy, Mike Childs, who notes that the government is still blocking cheap onshore wind in England and failing to provide effective support on home insulation.
This will “leave the UK hooked on high energy costs and falling behind in the global race to benefit from the transition to greener economies”.
“With industries such as steel, increasingly viewing hydrogen as the energy source of the future, the development of carbon capture and storage (CCS) is now less critical than it once was,” says Childs.
“CCS is starting to look like a technology aimed at prolonging the life of the fossil fuel industry – funded by the taxpayer and higher bills.”
He says nuclear power is “much more expensive than renewables”, with innovations in energy storage liekly to soon make it “redundant for balancing energy needs during periods of low wind or solar”.
“Investment in this sector is simply throwing good money after bad.”
Childs said the Budget “will do nothing to close the glaring gaps in the UK’s failing climate plans which were found to be unlawful by the High Court last year.”
1.50pm: Thoughts on pension lifetime allowance, childcare help, hospitality
On the abolishing of the lifetime allowance (the limit on how much you can accumulate across all your pensions before facing a tax charge), Rob Morgan, chief investment analyst at Charles Stanley (LSE:CAY), says: “Raising the pension annual allowance to £60,000 could help many people build up their retirement nest eggs, especially if they are playing catch up owing to missing contributions in earlier years due to affordability or gaps in employment.
“For those whose earnings vary greatly from year to year it offers more scope to up-size contributions and better plan for retirement.”
Morgan says the lifetime allowance change is “the real financial planning game changer” , which was previously frozen at £1.07mln until 2026 but now will have no limit.
“This could mean some people that are close to, or over, the previous threshold could be encouraged back into work, or to continue for longer, as they could accrue further pension provision without being penalised when they take benefits.
“It is especially relevant for certain NHS professionals where the limit was an obstacle to a much-needed return to the workplace, but it applies to anyone that has built up significant pension provision and worries about overstepping the limit.”
Some criticism on Hunt’s failure to heed calls for the removal of stamp duty on investment trusts, which Dan Howe, head of investment trusts at Janus Henderson Investors says is “hugely frustrating for those UK savers who are looking to invest for their longer term future.
“But they shouldn’t be disheartened. Investment trusts remain a crucial part of a resilient long-term portfolio, and those that invest properly with a longer time horizon will reap the benefits of compounding as well as a reliable income stream.”
On the extension to free childcare to one and two year olds, Ian Goodwin, partner at accountant Mazars, says it will be “a big boost to small business owners across the country who’ve been struggling with retaining and acquiring staff. Many working parents have previously had to withdraw from working as the cost of childcare outstripped any benefit in terms of salary. This change will allow more to return to their careers and boost productivity for small businesses across the UK.”
On the support for the hospitality sector, Sam Martin, CEO of Peckwater Brands, says, “the measures laid out for hospitality in the spring Budget fall short of the level of support that industry leaders have been crying out for over the past year.
“Hospitality can be a driver for the economy and a source of both jobs and tax revenue, but without the right conditions to grow, we will likely see businesses shut down by high business rates, unaffordable tax bills and short staffing. Short-term support with energy bills may keep the lights on in the coming months, but without further action, the possibility of a return to pre-pandemic levels appears slim”.
1.33pm: And he’s done
And breathe.
Hunt has sat down and that is the trigger for the opposition to respond in the Commons, which will be Labour leader Sir Kier Starmer this time.
It also is the trigger for a torrent of emails and tweets from the financial and business commentariat.
13.43pm: Back to work
The Chancellor is moving onto employment, supporting return to work plans, including pensions and childcare.
He increases the pensions annual tax-free allowance by 50% from £40,000 to £60,000.
And he abolishes the lifetime allowance limit on pensions, which is currently just over £1mln.
In focus here, he said, were senior doctors leaving the NHS. Hunt claims the move will stop over 80% of NHS doctors from receiving a tax charge.
On back-to-work measures, he says sanctions will be applied more rigorously to people on benefits who refuse to look for work, though the earnings threshold will be increased from 15 hours per week to 18 hours.
To try and get more older people into work, Hunt says there will be skills boot camps for people in their 50s.
Support to help disabled people into work is also proposed, with a white paper published today on disability benefits.
Hunt also says childcare in the UK is “one of the most expensive systems in the world” noting that close to half of non-working mothers say “they would prefer to work if they could arrange suitable childcare…for many women, a career break becomes a career end”.
He says the UK can match Dutch levels of participation, which would mean “more than 1mln more women who want to work, in the labour force”.
Incentive payments for childminders, is one idea Hunt proposes, and increased funding for nurseries by £204mln from this September, rising to £288mln next year.
He also extends free childcare to all children over nine months, and for school children wants wraparound care to be offered by schools so that children could be looked after from 8am to 6pm by 2026, either at school or in partnership with other schools.
Extending free childcare to all children over 9 months really is a big extension of the welfare state. Prob. about doubles childcare spending. We’ve been edging in this direction for a good 20 years. This is a new leg of the welfare state finally nearing its end point.
— Paul Johnson (@PJTheEconomist) March 15, 2023
1.26pm: Backing investment in pharma, AI, London Stocks
For the life science sector, a “swift new approval process” will be created for groundbreaking medicines
With £10mln of funding to generate a “rapid, near-automatic sign-off for medicines and technology” such as is seen had already been approved in the US and elsewhere.
To strengthen the position in artificial intelligence (AI), he says he is accepting all nine of the suggested measures from Sir Patrick Vallance’s review of the sector.
These include an “AI sandbox” to trial new means of promoting investment, an annual £1mln prize for “the most groundbreaking AI research” for the next ten years, a new supercomputer, with around £900mln to fulfil the recommendations of the Future of Compute review that called for the construction of a new “exascale computer”.
Following the collapse of Silicon Valley Bank (SVB) and the events in recent days, Hunt says these show “we need to build a larger, more diverse financing system, where the benefits of investment in high growth firms are available to more investors”.
He promises that the Autumn Statement later this year will include “measures to unlock productive investment from defined contribution pension funds and other sources, make the London Stock Exchange a more attractive place to list, and complete our response to the challenges created by the US Inflation Reduction Act”.
1.12pm: Business investment support
On business taxation, he notes that even after a previously proposed rise in corporation tax, the UK already has the lowest headline rate in the G7 countries.
“Only 10 of companies will pay the full 25% rate. But even at 19% our corporation tax did not incentivise investment as countries with higher headline rates.”
To address this, he says a new three-year policy of “full capital expensing” for businesses. So every pound a company invests in IT equipment, plant or machinery can be deducted “in full and immediately” from that year’s taxable profits.
This is worth £9bn a year, he says. “The impact on the economy will be huge.”
The OBR says it will increase business investment by 3% every year it is in place and gives the UK the “joint most generous capital allowance regime of any advanced economy”.
He also U-turns on tax measures on SMEs from his Autumn statement, now saying businesses in high-tech sectors that invest up to 40pc of their spending in R&D, will continue to receive an enhanced tax credit. The credit will be worth an extra £27 for every £100 spent, Mr Hunt said.
He said: “It is a £1.8bn package of support helping 20,000”.
1.10pm: Energy generation, carbon capture and nuclear
As well as a business energy bills scheme, measures to support carbon capture are also announced, with £20bn for carbon capture usage and storage (CCUS).
Nuclear energy will also now, subject to consultation, be classed as environmentally sustainable, which will enable it to qualify for the same investment incentives as renewable energy.
To encourage investment, nuclear power will be classed as “environmentally sustainable”, subject to consultation, he says. That will give it access to the same investment incentives as renewable energy.
He says the government will launch Great British Nuclear, “which will bring down costs and provide opportunities across the nuclear supply chain to help provide up to one quarter of our electricity by 2050”.
Attention Rolls-Royce Holdings PLC (LSE:RR.) followers, he also launched the first competition for Small Modular Reactors.
This “will be completed by the end of this year and if demonstrated as viable we will co-fund this exciting new technology”.
Jeremy Hunt’s Great British Nuclear. Ed Miliband’s Great British Energy. The Labour Party is less an opposition than an open-source policy shop
— Patrick Maguire (@patrickkmaguire) March 15, 2023
12.54pm: Defence spending
Following the PM’s announcement of a £5bn funding package for the Ministry of Defence this year, along with £2bn in 2024 and £3bn the year after, Hunt says the government will “add a total of £11bn to our defence budget over the next five years”.
By 2025, defence spending will be nearly 2.25% of Britain’s GDP, he says.
He says he intends to make a commitment to raise defence spending to 2.55 “as soon as fiscal and economic circumstances allow”.
12.50pm: Investment zones and regional handouts
The Chancellor announces eight new investment zones to take the total of new investment zones to 12, referring to Canary Wharf as an example of a successful regeneration project.
He says 12 investment zones, “12 potential Canary Wharfs” in the West Midlands, Greater Manchester, the North-East, South Yorkshire, West Yorkshire, East Midlands, Teesside and Liverpool.
“There will also be at least one in Scotland, Wales and Northern Ireland,” he says.
In each of these areas, locals must identify a location where they can “offer a bold and imaginative partnership” for a new investment zone., with successful areas getting access to £80mln of support for skills, infrastructure, tax relief and business rates retention.
Also announced are £200mln of investment in local regeneration projects, plus £161mln for regenation projects in mayoral combined authorities, £400mln for “new Levelling Up partnerships” in areas like Rochdale, Mansfield and South Tyneside, and £8.8bn for local transport over five years, and a £200mln increase to the “potholes fund” from the existing £500mln.
Today the Chancellor announced that 8 locations in England are now eligible to host a UK investment zone.
Investment zones:
✅ Grow our strengths in key industries & level up
✅ Attract new investment into communities
✅ Create jobs & drive growth pic.twitter.com/mYn1KXWnpD
— HM Treasury (@hmtreasury) March 15, 2023
12.47pm: Economic growth not as bad as feared
Now the focus is on growth, another of the PM’s priorities.
“Growth is the Prime Minister’s third priority”
Your regular reminder that GDP growth doesn’t always improve lives…
…especially in the UK. #Budget23 pic.twitter.com/rjLHdR4QpR
— Alfie Stirling (@alfie_stirling) March 15, 2023
The OBR forecasts a contraction of 0.2% for the UK economy this year, rising to 1.8% next year and 2.5% in 2025.
Unemployment is expected to rise to 4.4%.
Our March 2023 GDP forecast. Full forecast published after the Chancellor’s #SpringBudget speech pic.twitter.com/LarSBvUcmD
— Office for Budget Responsibility (@OBR_UK) March 15, 2023
12.44pm: Govt debt
Now the Chancellor is moving onto talking about cutting debt, another of the PM’s priorities.
Hunt says underlying debt is forecast by the OBR to be 92.4% of GDP this year, falling to 94.6% in 27-28.
He says cutting debt will allow the government to slightly reduce the tax burden by the end of this parliament.
In the final two years of the forecast, the budget is expected to be in surplus, with day to day departmental spending to grow at 1% a year in real terms after 2024-25 until the end of the forecast period.
12.42pm: Cost of living measures
After a short intro, the Chancellor gets into the OBR forecasts, starting with inflation falling from 10.7% at the end of last year to 2.9% by the end of 2023.
Our March 2023 inflation forecast for the end of this year. Full forecast published after the Chancellor’s #SpringBudget speech pic.twitter.com/Ic8aLZRWnw
— Office for Budget Responsibility (@OBR_UK) March 15, 2023
He says partly this is due to government support for household energy bills, which he pre-announced earlier today.
For households on pre-payment meters, he says changes will be brought into line with comparable direct debit charges.
For community facilities such as swimming pools (public ones, not private ones like PM Rishi Sunak’s), a £63mln fund will help leisure centres ‘afloat’, plus £100mln to support local charities.
Another cost of living measure is to support pubs, increasing relief on draft beers, so from 1 August will be up to 11p lower than the duty for supermarkets. Part of a “new Brexit pubs guarantee,” he says. “British ale is warm but the duty on a pint is frozen.”
Fuel duty. “Because inflation remains high, I have decided now it not the time to upgrade fuel duty.” He says he will freeze fuel duty, saving the average driver £100 next year.
“Not the right time to increase fuel duty with inflation”. It never is! Not undoing the “temporary” 5p cut either. But still pretending it will be undone and increased with inflation next year. Absurd. This continued pretence aimed to flatter future public finances is ludicrous.
— Paul Johnson (@PJTheEconomist) March 15, 2023
Recall that the government has spent months saying it can’t find any money to prevent nurses and teachers getting very big pay cuts. He just found £6 billion to cut fuel duties. That’s a choice.
— Paul Johnson (@PJTheEconomist) March 15, 2023
12.33pm: Economy better than expected?
Hunt says the “British economy is proving the doubters wrong”.
He notes 10y gilt rates being down, inflation is easing etc.
The OBR forecasts say the UK will not enter a recession this year, he adds.
12.30pm: Let’s go
The Chancellor is getting ready to go, with an introduction from the deputy speaker.
12pm: Budget overshadowed?
With around half an hour to go before the Chancellor stands up in parliament, the budget is so far being overshadowed by ominous rumbles from the banking sector.
As well as his party’s wish to keep some powder in store to unleash ahead of next year’s general election (which needs to be held no later than January 2025), worries about bank are among several reasons that the Chancellor is likely to cite for keeping a tight grip on spending.
However, lobby journalist Chris Smyth at the Times said expectations among MPs will be high after Jeremy Hunt told Cabinet this morning that there was an “improved economic picture” since the autumn.
So we will see.
The carnage in European banks ⬇️ pic.twitter.com/BFQMdKVvRP
— Julianna Tatelbaum (@CNBCJulianna) March 15, 2023
9.30am: Pre-Budget news
Ahead of his Budget statement later, chancellor Jeremy Hunt has confirmed that government support for energy bills will be extended for a further three months.
Shelving previous plans to raise the cap to £3,000 for a “typical household”, the extension has been calculated to cost the Treasury around £3bn-£4bn.
The borrowing needed to provide the support has been much reduced as wholesale energy prices have also been falling, recently around 50% lower than had been forecast in October.
“With energy bills set to fall from July, extending the Energy Price Guarantee will bridge the gap, easing the pressure on families,” he said in a tweet.
Hunt said this had been “made possible in part” by the windfall taxes on profits from energy companies.
We are extending energy bills support for further 3 months.
With energy bills set to fall from July, extending the Energy Price Guarantee will bridge the gap, easing the pressure on families.
Made possible in part by windfall taxes on energy profits ???? pic.twitter.com/5J1ihyjzRl
— Jeremy Hunt (@Jeremy_Hunt) March 15, 2023
The Treasury confirmed that the price guarantee will remain at £2,500 a year “for a typical household” until the end of June.
Under the latest price cap from regulator Ofgem, suppliers would have been able to charge the average household up to £3,280 from April 1, a drop from £4,297 at the moment.
“This will come as an enormous relief for the millions of people who are already struggling to pay their bills, and were facing the threat of price rises with abject horror,” said Sarah Coles, head of personal finance at Hargreaves Lansdown.
9am: What’s expected from today’s Budget
The Chancellor will present his full statement in the House of Commons at 12.30pm, after the Prime Minister’s Questions has finished.
Armed with his red despatch box, Hunt will also share the updated fiscal and economic forecasts by the Office for Budget Responsibility (OBR) (OBR), which are expected to show some positive changes following the unexpected £5.4bn recent public spending surplus.
As well as support for energy bills and childcare, there are many other potential measures that have been leaked or demanded:
- support for industries most exposed to elevated energy costs
- something else to mollify business leaders such as James Dyson calling for lower taxes
- increasing departmental budgets to allow a pay rise for public sector workers
- subsidies for motorists via an extension on the fuel duty freeze
- increasing the lifetime allowance for tax-free pension savings
- low-tax zones outside of London
here is some useful historic context on the increases in the pension allowances in today’s Budget pic.twitter.com/R5g6O8gVB4
— Jim Pickard (@PickardJE) March 15, 2023
8am: Hunt preparations
Chancellor Jeremy Hunt, like many of his predecessors, has spent plenty of time sharing some of his plans with the media.
One of his public pledges has been that businesses will be the main beneficiary of any tax cuts, amid criticism from the likes of James Dyson and M&S boss Stuart Machin.
One of the big handouts also announced this week is a £4bn expansion of free childcare for one- and two-year-olds in England, part of a government drive to try and encourage parents to return to work earlier.
He and his boss, Rishi Sunak, have emphasised that despite the surprisingly large surplus reported in January, the fiscal backdrop and high inflation remain limiting factors.
To get warmed up for the big show, here are some photos of the Chancellor making his last-minute preparations for the Budget/posing with his advisers.
Chancellor @Jeremy_Hunt prepares for tomorrow’s Spring Budget.
Click the photo below to see the full set of photos ⬇️
— HM Treasury (@hmtreasury) March 14, 2023
