Like its predecessor, the spring budget, the spring statement heralds the beginning of the end of the financial year. It also sets out what investors can expect from the year ahead. Here are its key points.
The UK is expected to avoid a recession
The Office for Budget Responsibility now predicts the UK will avoid two consecutive quarters of decreasing GBP. This means it will not, technically, enter a recession. The OBR also predicts that inflation will decrease by over 50% by the end of 2023.
Looking at this in more detail, the Chancellor advised that the UK economy was only expected to contract by 0.2% over the course of 2023. This is a vast improvement on a previous prediction of 1.4%. From 2024 to 2027, the UK economy is expected to grow.
Unemployment is expected to stay fairly static with a maximum predicted increase of 1%. As expected, many of the chancellor’s measures appeared to be targeted at getting people (back) into work and/or helping working people.
Pension lifetime allowance is abolished
It was widely predicted that the chancellor would take very specific measures to encourage the over-50s back into work. These are often people with significant experience. They can therefore provide invaluable support to younger workers.
The chancellor took the bold step of completely abolishing the lifetime allowance for pensions. (The lifetime allowance is the maximum amount that workers can put into their pension pots before they are taxed).
It’s possible that Mr Hunt’s move was very specifically targeted at encouraging members of certain professions back into work, particularly doctors. Regardless, it does offer a clear inducement to over-50s to get back into the job market in some way. It may not encourage them to come back full time but it could boost the number of part-time workers.
Free childcare is extended
Again, it was almost guaranteed that Mr Hunt was going to need to make some kind of move on childcare. The pressure on working parents has been making news headlines in major outlets.
It’s also been a major point of concern for employers since it’s been driving people, especially women, out of the job market. This in turn has made it a major concern for equality campaigners.
Mr Hunt has responded by significantly expanding the government’s provision for free childcare. The expanded provision will be rolled out from April 2024 when parents of two-year-olds will be able to claim 15 hours of free childcare per week. In September 2024 this will be expanded to all children from 9 months old.
From September 2025 all children covered by the policy will qualify for 30 hours of free childcare a week. Furthermore, parents on universal credit will have their childcare costs paid upfront instead of having to claim the money back.
Corporation tax is increased
Mr Hunt’s largesse towards early retirers and parents will be funded, at least in part, by an increase in Corporation Tax. From April, businesses with profits of more than £250,000 will pay 25% corporation tax. Those with profits of less than £50,000 will continue to pay corporation tax at 19%. Those in between will pay a prorated increase.
This measure was initially introduced by Rishi Sunak towards the end of his tenure as chancellor. Presumably, the hope is that economic growth, plus reduced inflation and increased labour supply will at least counterbalance the impact of the tax increases.
Fuel duty is frozen
Another widespread prediction was that the government has rowed back on plans to increase fuel duty. This has been proven correct. The temporary cut of 2022 is still temporary but has been extended for another year. The inflationary increase has also been postponed for another year.
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