The good news from Jeremy Hunt in his Budget is that Britain will avoid a technical recession this year with inflation halving by year-end.
His claim is based on new forecasts from the independent Office for Budget Responsibility, overturning gloomy warnings from soothsayers including the Bank of England, that the UK was facing its longest-ever recession.
As the Chancellor put it, he’s proved the “doubters wrong” and the UK is now on the right track. It’s why he is already being dubbed “lucky Hunt”. Together with a boost in tax revenues and a warmer winter, Hunt had more room to manoeuvre than expected, allowing him to extend the energy support package, freeze fuel duty and even serve up cheaper warm ale in the great British pub.
His boast was backed by further OBR forecasts, some say over-optimistic forecasts, pointing to growth of 1.8% next year, with 2.5% in 2025 and 2.1% in 2026.
But there was bad news too: the economy is likely to shrink by 0.2%, albeit less than the 1.4% previously forecast, and once inflation is taken into account, incomes are expected to fall by 5.7% this year, the biggest two-year drop since records began in the mid-1950s.
Which is why the Chancellor, in what has been billed as the Back to Work Budget, focused on enticing some of the seven million or so people who are “economically inactive” back into the workplace.
Bold pensions move
In one of the boldest Budget moves in recent times, the lifetime pensions savings allowance has been scrapped – mainly aimed at persuading higher-paid NHS doctors and other public sector staff to stay working – and the annual pension allowance has been increased by £20,000 to £60,000. Politically, it’s a hard one for Labour to dispute. You can see the headlines now: “What, you don’t want doctors to stay working?”
Extending child care to under-threes, improving disability benefits and offering more skills training and new “returnerships” for those aged over 50 were also promising moves. (Note to Hunt: change this name pronto. Who would want to go on a returnership?)
The OBR reckons that extending childcare could have the largest impact of all the Budget measures with a potential 60,000 new parents brought into work. As always the devil will be in the detail of the proposals, and what impact extra free hours will have on nursery providers and staffing levels.
Overall, the OBR estimates the new back to work measures could increase labour supply by as much as 240,000 or as low as 55,000.
Big business was another winner. Hunt did not give in to those wanting to scrap the rise in corporation tax to 25%. But he has granted full capital expensing for businesses for the next three years, aiming to make this permanent when possible. This means all capital expenses can be deducted from taxable profit, saving businesses around £9 billion a year and should boost investment by 3% a year.
Small business overlooked
Feeling left out in the cold, however, were the UK’s 5.5 million small businesses employing 16 million workers. They were distinctly unimpressed, although the extension of R&D tax credits for small companies – particularly in the innovative life-science sectors – was positive.
Yet the FSB’s Martin McTague claimed SMEs have been over- looked, and undervalued. It’s hard to disagree: they have not been given any energy support while around half a million small businesses will be hit by the corporation tax hike.
It’s curious that Hunt didn’t make more of a play for small business owners: not only are they the economic backbone of the country responsible for most new jobs but they are obviously key swing voters…
So the verdict? Boring but safe and won’t frighten the horses like the last Truss Budget. Financial markets are volatile enough, with the shares of European banks being hammered after the SVB collapse.
Others were more critical, arguing that Hunt should have taken more of a gamble to get the economy motoring again. He will need more than luck next time around.
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