Yesterday, Chancellor Jeremy Hunt delivered a speech on the 2023 Spring Budget – outlining what the government will prioritise. Among the various points made, the budget included a “back-to-work” plan to tackle economic inactivity and labour shortages. Inflation was also mentioned as a key point as it affects workers, businesses and industries significantly.
The budget was coined as “a budget for growth”, as the Chancellor will be prioritising halving inflation, reducing debt and growing the economy.
The UK inflation rate in January 2023 was reported by the Office for National Statistics (ONS) as 10.1%. The high rate is especially significant when compared to January 2022 numbers which were half of that.
Chancellor Jeremy Hunt acknowledged that inflation has caused significant impacts on pay, investments and industries. Further, he mentioned that the high inflation rates are driving the various strike action that has been affecting the UK. Thus, his budget and plan for the year will be aimed to halve those rates – back to the numbers of last year.
His speech was rather optimistic as he cites the Office for Budget Responsibility’s (OBR) forecast that the UK inflation rate will fall to 2.9% in Q4 of 2023. He believes that this prediction by the OBR is due to the measures that he has announced.
Help with cost-of-living was also announced – including keeping the Energy Price Guarantee at £2,500 for the next three months, providing of funds to local charities and communities and freezing fuel and alcohol duty.
It was mentioned that in GDP proportions, the UK debt is still lower than the USA, Canada, France, Italy and Japan.
In terms of reducing debt, the plan is on track according to the Chancellor. The measures taken by the Chancellor for this year are predicted to lower underlying debt by 3% in five years compared to last Autumn.
This forecast also predicted that in the final two years, the UK will experience a budget surplus, which will mean that the borrowing will be for investment and not for spending.
Growing the Economy
It is stated in his speech that many expected the UK to enter a recession in 2023. However, this is now unlikely to happen based on the OBR forecast – with a contraction rate predicted at 0.2%. He mentions that the upcoming years will see continuous growth.
However, there are also concerns about unemployment, labour shortages and economic activity. To tackle this, the “back-to-work” plan was announced. This plan includes various changes to benefits that are aimed to motivate people to re-joining the workforce.
Reform of pension taxes was announced, and now the £1 million cap on pension funds before taxes has been abolished. This measure is largely aimed at doctors delaying retirement. An increase in annual tax-free contribution for pensions was also announced to £60,000 from previously £40,000.
Universal Credit will change through this announcement, with the plan to remove the work capability assessment and the separation of benefit entitlement from the right to work. There will also be tightening of rules for jobseekers on Universal Credit to motivate individuals to get into employment.