Jeremy Hunt has claimed Britain will become the best place to invest of any advanced economy after the chancellor put £9bn of business tax breaks at the heart of his “Budget for growth”.
His first Budget also contained two big measures intended 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 arrived in the House of Commons with new official forecasts showing the UK would avoid a technical recession in 2023. “The plan is working,” he claimed. “The declinists are wrong and the optimists are right.”
During his one-hour statement, Hunt insisted he had restored economic stability after the chaos of the Liz Truss premiership last year, and that inflation was under control and confidence returning.
But the chancellor has been criticised for failing to have a vision of how to shake Britain out of its 15-year economic malaise, with some Tory MPs clamouring for tax cuts.
Hunt’s Budget focused on increasing the size of Britain’s workforce, tax breaks to encourage business investment, a range of initiatives to help new industries and a pensions boost for the better-off.
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 effect, however, came from the fiscal watchdog’s assumption of lower natural gas prices, which it thinks will limit the cost of living crisis.
The detail of the forecast shows that instead of contracting 1.4 per cent this year, the economy will shrink only 0.2 per cent, before recovering to an annual growth rate of 1.9 per cent by 2027.
Hunt’s measures amount to a giveaway of £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 falling as a share of gross domestic product in 2027-28, highlighting the still precarious state of the government finances.
Under pressure from Tory MPs to cut taxes, Hunt focused most of his fiscal firepower on tax breaks for business, which he claimed would increase UK investment and offset a 6 percentage point rise in corporation tax.
He announced a three-year 100 per cent “full expensing” scheme, allowing companies to offset all capital spending against their tax bill in the year it is incurred, a move costing an average of £9bn a year. Hunt said Britain was the only major European country with such a system.
Along with a three-year increase in tax credits for investment-intensive companies, such as tech groups, rising to £500mn, the business tax breaks were by far the biggest single spending line in the chancellor’s statement.
Also key to the Budget was Hunt’s promise to tackle inactivity in the British labour market, delivering a range of measures to persuade parents, the sick, disabled and over-50s to go back to work or increase their hours.
The chancellor surprised MPs by scrapping the lifetime tax-free pensions allowance, currently set at £1mn; he claimed it would encourage older people to carry on working. The annual allowance will rise from £40,000 to £60,000. Together, the measures will cost about £1.1bn a year.
The centrepiece of his employment plan was a £5bn expansion of free childcare for one- and two-year-olds in England, an attempt to ease cost-of-living pressures as well as helping mothers to stay in work.
The disabled and sick will be encouraged through the benefits system to go back to work but will also face a “stick”, with the risk of sanctions if they refuse to see work coaches or take up work.
Separately, the government started to open up the labour market to more foreign workers, putting construction workers on a “shortage occupation list”; other sectors could be added later in the year.
Hunt wants to wait until the autumn before starting to roll out significant personal tax cuts, but his Budget did find cash to alleviate pressure on households facing high inflation.
The chancellor confirmed he would maintain the £2,500 energy price guarantee for another three months from April, a £3bn move that will avert a springtime jump in domestic energy bills.
“With energy bills set to fall from July onwards, this temporary change will bridge the gap and ease the pressure on families, while also helping to lower inflation too,” Hunt said.
A cut in fuel duty from last year will be maintained and the rate frozen at a cost to the exchequer of £5bn, in the latest concession to motorists.
Labour party leader Sir Keir Starmer accused the government of leaving the country on a “path of managed decline”, as he argued that Wednesday’s Budget “changes nothing”.
He said that after 13 years in power, the Conservatives had left the country “in a doom loop of lower growth, higher taxes and broken public services”. He added: “After today we know the Tory cupboard is as bare as the salad aisle in our supermarkets.”
Additional reporting by Jasmine Cameron-Chileshe