The Economic Picture
Today, Jeremy Hunt became only the second of the past five chancellors to hold the famous red box outside Number 11, with three of his predecessors not having lasted long enough in the job to be able to hold an official Budget.
Going into this Budget there were concerns regarding the size of the workforce, which had not recovered from the pandemic, as well as post-Brexit trade barriers and sensitivity to interest rates. All of this and more contributed to predictions that growth of the UK economy would only get back to its pre-covid levels in 2026.
With this, as well as the recent tumult in the Conservative Party and Liz Truss’ disastrous mini-budget fresh in the minds of political pundits and the public alike, Hunt would have been hoping to deliver a Budget of stability that would restore trust in his Party’s handling of the economy and give them a boost in the opinion polls. So what’s the verdict? Let’s take a look at the Budget highlights…
Support for energy bills
At the forefront of the public mind is the cost of energy bills. Hunt announced today that support will be maintained at current levels for three months more and that prepayment energy charges will be brought in line with those for customers who pay by direct debit. Longer term, the Government committed to boosting UK nuclear power to increase energy security and investing £20 billion in carbon capture and storage over 20 years as part of net zero targets.
Back to work
The Chancellor himself branded this as the ‘back-to-work Budget’, giving a clear sense of his focus on getting people back into employment. Measures announced include help for parents on universal credit and increasing the free childcare allowance to 30 hours a week. Hunt also scrapped the lifetime allowance and increased the tax-free allowance for pensions, to encourage ‘highly skilled workers’ to remain in the workforce.
It is expected that major changes to the tax system will be announced in Autumn but that said, commitments today included a number aimed at boosting investment more organically – this included a dozen new low-tax ‘investment-zones’, which will benefit from £80 million of support over five years. The super-deduction for business investment will also be replaced by a new ‘full-expensing regime’, costing £22 billion over two years.
What else happened?
In a big announcement for devolution, the West Midlands and Greater Manchester combined authorities will be given new budgets of around £1 billion a year. They will be trusted to make the decision on where to prioritise spending and will also be given full control over budgets in new areas such as education, transport and housing.
So, what does this mean?
As is so often the way with political announcements, this Budget said a lot in what it did not say at all. The omission of any funding announcements for the NHS or transport, during a week of strikes across the board, has been widely criticised, not least by Opposition Leader Keir Starmer, who stressed that Britain faced a “year of stagnation” and “non-existent” growth.
Hunt has been facing pressure in recent days from the newly formed Conservative Growth Group, which claims it has support from 55 Conservative MPs who all backed former Prime Minister Liz Truss’s vision for growth. Whilst they will likely be disappointed the Budget didn’t go further, the Chancellor has done the job to reassure other restless Tory MPs that “the plan is working”, supported by his ability to confidently say government borrowing costs have now fallen and inflation has peaked.
Nonetheless, this reassurance and confidence will not be felt across the board. The OBR have added that real household disposable income per person will fall by 6% this financial year and next, as they predict households will be dipping into their savings to manage the squeeze on living standards. Hunt may have done enough to tie over Conservative MPs but the same cannot necessarily be said for the public.
While this Budget seems to contain a series of positive announcements on the surface, it remains to be seen whether these measures will indeed aid the growth that Hunt is aiming for.
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February 21, 2024