Chancellor Jeremy Hunt has vowed to use his Budget on Wednesday to set Britain on the “hard road” to becoming one of Europe’s richest countries but warned that big tax cuts will have to wait.
Hunt is expected to use his limited room for fiscal manoeuvre to offer tax breaks to encourage companies to invest, while also funding measures to get people back to work and to ease the cost of living crisis.
The chancellor said on Sunday there were “no easy fixes” to boost the UK’s weak economic growth as he paved the way for a Budget that will eschew big giveaways in favour of fiscal discipline and an effort to bear down on high inflation.
“I think we have fantastic opportunities in this country,” Hunt told the BBC. “There is a hard road to follow to get there but we really can be one of the most prosperous countries in Europe, if not the world.”
Hunt said business wanted stability and he is seeking to repair the damage caused by Liz Truss’s chaotic premiership last year.
He said tax cuts were desirable but that responsible management of the public finances came first. “Within the bounds of what is responsible, we will always look to reduce the tax burden,” he added.
Hunt has told Conservative MPs to be patient and that tax cuts will be possible in the autumn and before an election next year, once inflation had been tamed.
Government insiders confirmed Hunt will use what fiscal leeway he has in the Budget to set up a capital allowance regime for companies to replace the “super-deduction”, a generous £25bn two-year investment incentive scheme that is about to end.
With the corporation tax rate rising from 19 per cent to 25 per cent in April, Hunt is under pressure to show he has a plan for growth.
In the short term he will spend money on Tory political priorities, including providing an extra £5bn over two years for defence and £3bn more to hold down household energy bills this spring.
Hunt will also try to tackle the NHS staffing crisis by changing pension rules that are blamed for dissuading senior doctors from working into their fifties.
The annual pension saving limit will rise from £40,000 to £60,000 before tax charges are incurred, and the lifetime allowance will increase from its current level of £1mn.
Hunt hopes that NHS unions could before the Budget agree to a pay deal, ending months of strikes, to lift the national mood. More talks between ministers and unions will take place this week.
The chancellor will be under pressure in the autumn to find money to cover the cost of public sector pay deals, which are expected to involve one-off settlements for 2022-23 and more generous offers for 2023-24.
A big focus of the Budget will be on tackling workplace inactivity, including making childcare more affordable for less well-off families and increasing incentives for the sick and disabled to gain employment.
Hunt will increase the amount parents on universal credit can claim for childcare but admitted it would be “expensive” to extend the help to working families not in receipt of the flagship welfare benefit.
He will also announce that the number of children that each carer can look after in nurseries in England will be increased from four to five, bringing them into line with their counterparts in Scotland.
People on universal credit will be encouraged to move into work or increase their hours through changes to the welfare benefit.
An element of coercion will be used, with claimants being asked to attend more regular meetings with work coaches and attend skills boot camps.