Chancellor of the Exchequer Jeremy Hunt will present his Spring Budget 2023 to Parliament on Wednesday 15 March, accompanied by a full fiscal statement from the Office for Budget Responsibility. The Budget is expected to focus on measures which will support the Government’s mission to halve inflation, grow the economy and reduce public debt. The Chancellor’s speech is likely to begin around 1230, following Prime Minister’s Questions. Download a copy of our briefing here:
What to expect
Energy bills support
The Chancellor is expected to extend the Energy Price Guarantee at current levels for a further three months, cancelling a reduction in support that would have seen annual bills rise from £2,500 to £3,000. On 28 February, Energy Security and Net Zero Secretary Grant Shapps said he was “very sympathetic” to calls to protect households from the increase, adding he was “working very hard” with the Chancellor on the issue.
Fuel and alcohol duty
A temporary 5p fuel duty cut, announced at the Spring Budget 2022, is due to expire this month. However, reports have indicated that the Chancellor is planning to extend the cut for another year. If removed as originally planned, the RAC warned that petrol prices would rise to 153.72p and diesel to 173.19p when factoring in VAT. Reports also indicate that the Chancellor plans to freeze alcohol duty until at least August.
Corporation tax
Despite appeals from MPs and business leaders, it appears the Chancellor is likely to press ahead with the planned rise in corporation tax from 19% to 25%. To help offset the rise and the end of the super-deduction scheme, the Chancellor could use the Budget to announce a new tax break regime for businesses to drive investment.
Inactivity
A key focus for the Chancellor is likely to be getting the economically inactive back to work. In January 2023, he told those who retired early after the pandemic or those who had not found the right role after furlough that “Britain needs you” and pledged to “look at the conditions necessary to make work worth your while”. As part of his ambition, the Chancellor is reportedly considering raising the lifetime allowance for pensions to assist the NHS in retaining senior doctors. There may also be an announcement that the pension age will rise to 68 by 2039, rather than 2046.
Childcare support
The Chancellor is said to be considering a proposal to massively expand free childcare to one and two-year-olds in England, after Department for Education officials submitted a plan for a free 30-hours-a-week entitlement for working parents of children aged nine months to three years. Chair of the Education Committee Robin Walker said “the Treasury should definitely look very carefully” at the proposal.
Defence
Defence Secretary Ben Wallace has reportedly called on the Chancellor to increase the defence budget by between £8bn and £11bn over the next two years to partly cover the effects on his Department of supporting the war in Ukraine. However, the settlement is expected to be between £4bn and £5bn. The Prime Minister is due to announce the funding during a trip to the US for a meeting with President Biden over the weekend.
Economic Outlook
Ahead of the Spring Budget, the House of Commons Library released a briefing looking at the UK’s economic situation, economic forecasts and public finances.
Headline Summary
Economic growth in the UK has been weak, with ONS data showing that GDP during 2022 was stagnant overall and GDP in December 2022 was roughly the same (-0.1%) as the year before.
The economy is expected to remain weak in 2023, with household incomes under increasing pressure leading to lower consumer spending, which forms a crucial part of the economy.
However, data in February and early March suggest the economy is proving slightly more resilient than anticipated. There are signs of an upturn in consumer and business sentiment.
Falling wholesale gas prices indicate that household energy bills will be lower later in 2023, which would help accelerate the expected fall in inflation.
Economists forecast inflation to fall from its current rate of about 10% to closer to 4% by the end of the year, partly due to lower energy prices and reduced global supply chain bottlenecks.
Nevertheless, GDP growth, even under a more optimistic scenario, is expected to remain around 0% in 2023.
Public finances
Government borrowing has fallen from the peacetime record reached in 2020/21 but remains higher than the past 50-year average, with borrowing equivalent to 5.2% of GDP in 2021/22.
In its previous forecast released in November 2022, the OBR estimated that Government borrowing would increase to 7.1% of GDP in 2022/23.
However, borrowing may be lower than is forecast as the cost of supporting households and businesses with their energy costs has been lower than expected. This has resulted in Government borrowing being £30bn lower in the 2022/23 financial year so far.
The OBR’s March 2023 forecast
A number of factors will influence the OBR’s March 2023 borrowing forecast, which is key for the economy as it will affect tax revenues and areas of Government spending.
The Chancellor’s policy decisions are also important, and he will be seeking to meet his newly approved targets for Government borrowing and debt.
Both targets are focused on the fifth year of the forecast (currently 2027/28) and both were being met in the OBR’s November 2022 forecast, by relatively small margins.
Stakeholder submissions to the Treasury
The CBI asked the Government to: tackle labour and skills shortages by reforming childcare, expanding the health support that firms can offer employees and reform the Apprenticeship Levy with a two-year pilot scheme; drive lasting productivity growth by unlocking business investment through the tax system; and unleash green markets and energy resilience by supporting firms to be more energy efficient.
The British Chambers of Commerce asked the Government to: unlock talent and ease pressure in the labour market by making childcare more affordable; boost the UK’s start-ups by further reforming the business rates system; set a framework for Solvency II investment that helps direct funds to where they can have the most impact, leveraging the opportunities of green innovation; and provide funding to help businesses become greener and more energy efficient.
The FSB asked the Government to: introduce measures to boost entrepreneurship and help small businesses; improve the UK’s labour market participation rates by introducing a Kickstart-style job scheme; reverse the planned cut to R&D tax relief; and ensure small businesses can access energy efficiency technologies, including a ‘Help to Green’ voucher scheme.