Budget preview: What to expect from Jeremy Hunt’s spring statement
With the cost of living crisis still part of everyday life, chancellor Jeremy Hunt will deliver his Spring budget to UK households hoping for more support against spiralling bills.
From help with energy bills, childcare and fuel prices to big decisions on public sector pay and pensions, Hunt will set out his tax and spending plans for the years ahead on Wednesday 15 March.
Hunt has said it will be "a hard road" to return the UK to prosperity and played down the prospect of tax cuts in Wednesday’s announcement.
Although inflation appears to have peaked, households are still feeling the pinch as prices are much higher than a year ago and incomes are not keeping up. This is set to persist even though inflation is expected to fall.
“All eyes will be focused on any small gratification that may emerge from Hunt’s red box,” Laith Khalaf, head of investment analysis at AJ Bell, said.
Here are some of the things to look out for when the chancellor delivers his statement:
Government support for energy bills will continue for three months from April, protecting consumers from an average increase of £500.
Typical household energy bills were scheduled to rise to £3,000 a year from April, but calls have been made for the government to retain its current level of support with a cap of £2,500.
Hunt said: “High energy bills are one of the biggest worries for families, which is why we’re maintaining the energy price guarantee at its current level.
“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."
New - the Energy Price Guarantee will remain at £2,500 a year for a typical household until the end of June.
With energy bills set to fall from July, this change will bridge the gap, easing the pressure on families. pic.twitter.com/QjqEGciM9C
— HM Treasury (@hmtreasury) March 15, 2023
Fuel poverty campaigners have said the number of households struggling to afford bills could rise from 6.7 million to 8.4 million as a result of the April rise.
Laura Suter, head of personal finance at AJ Bell, called it a “no-brainer” for Hunt to extend the scheme “for a few months”.
She said: “The plan to make the Energy Price Guarantee less generous in April at the same time as the government stops the monthly rebate we’ve all been getting off our bills would have landed the average household with an extra £900 on their annual fuel bills in one swipe.”
Read more: UK government posts unexpected budget surplus in January
The three-month extension of the energy price guarantee (EPG) at its current £2,500 level will save a typical household around £160, according to the government.
Prime minister Rishi Sunak said: “We know people are worried about their bills rising in April, so to give people some peace of mind, we’re keeping the energy price guarantee at its current level until the summer when gas prices are expected to fall.
“Continuing to hold down energy bills is part of our plan to help hardworking families with the cost of living and halve inflation this year.”
The decision to extend the Energy Price Guarantee is good: keeping average bills at £2.5k rather than allowing them to rise to £3k. Also sensible to level PPM tariffs. These are things industry has called on Gov to do @BBCr4today
— Emma Pinchbeck (@ELPinchbeck) March 15, 2023
The EPG caps the unit cost of energy, not the total bill.
A three-month extension is expected to cost the government around £5bn, according to Deutsche Bank.
Households that use energy pre-payment meters will not pay more for their energy than those on direct debits, Hunt also confirmed on Sunday.
According to the Treasury, those on prepayment meters pay more on average compared to direct debit customers due energy companies passing the extra costs of managing meters on to users.
However, this will come to an end from July, through updates to the EPG scheme.
“It is clearly unfair that those on prepayment meters pay more than others,” Hunt told Sky News. “We are going to put an end to that.”
Today’s budget will end this energy premium, the Treasury said, “saving 4 million families £45 a year from July”.
Public sector pay
There is “really significant” pressure on the chancellor to rise public sector salaries, said Cara Pacitti, senior economist at the Resolution Foundation, as nurses, teachers, civil servants, rail workers and others continue to strike over pay rises that do not match the 10.1% rate of inflation.
At the moment, existing departmental budgets will allow for a 3.5% public sector pay rise. A higher 5% settlement would cost £4bn, according to Deutsche Bank.
Although the Treasury is resisting demands for more money to end the industrial action, recent talks involving ministers and trade unions representing NHS staff suggest a pay deal could be close.
Read more: How to get a reasonable pay rise
The National Institute of Economic and Social Research (NIESR) said the chancellor should allow public-sector wages to rise to catch up with the private sector, given private-sector wages have been rising much faster than public-sector wages of late.
“We can expect some spillovers from public sector wage growth to the private sector, but any adverse macroeconomic effects need to be assessed against potential output losses if the public sector lost skilled workers,” NIESR said.
The Bank of England has warned that raising pay could trigger a wage-price spiral, hurting efforts to reduce inflation.
Read more: Chancellor could raise UK public sector pay amid £166bn spending headroom
“The question in the budget will be whether the chancellor sets out a coherent strategy, including on pay, to address workforce problems across the public sector to improve performance and prevent further strikes.” the Institute for Fiscal Studies said.
“Will he for example top-up departments’ budgets over the next couple of years to fund higher pay settlements or instead require that any increase be found out of tight existing settlements?”
State pension age changes and pension tax
A review of pensions allowances, the triple lock, and a possible change in the state pension age are all expected to be on the chancellor’s list in the Spring budget.
The state pension age is currently 66 and set to rise to 67 between 2026 and 2028. However, the government is understood to be in talks to bring the increase to 68 forward, a plan which Hunt could announce this Wednesday.
Alice Guy, head of pensions and savings at Interactive Investor, said: “It’s a question of when not if, when it comes to speeding up raising the state pension age to 68.
“Raising the state pension age earlier than planned in the budget will be an extremely tempting option for Hunt, as it’s a relatively easy way to reduce the governments’ pension bill and balance the books.
Read more: Don't miss your chance to boost your state pension
“The chancellor is likely to have advanced sight of the state second periodic review of the state pension age, led by Baroness Neville-Rolfe, which is due to come out by May this year. The review is widely expected to raise the state pension age to 68 as early as 2034, with a knock-on effect on the private pension age. The private pension age will be tied to the state pension age from 2028 and will be 10 years earlier than the state pension age from that point.”
There have also been reports that pension allowance rules and the cap on annual contributions could also be changed to address the so-called pensions trap — when people cut their hours or take early retirement to avoid higher taxes on their pensions.
An increase in the tax-free lifetime allowance (LTA) on pension savings, which could rise from £1.07m to as much as £1.8m is now widely expected to be announced.
The annual and lifetime pension allowances, which stand at £40,000 and £1.073m respectively, are caps on how much someone can contribute into their pension while still benefiting from tax relief each year.
Could the fuel duty cut continue?
Hunt is facing pressure from Conservative MPs to extend the 5p cut to fuel duty for another year.
A forecast from the Office for Budget Responsibility said 12p per litre would be added to pump prices if the government didn't act.
“There’s likely to be another freeze in fuel duty. This has been held since 2011, so it would be politically difficult to hike at this stage. And although prices have come back from the peaks, it’s still incredibly expensive to fill up at the pumps,” Hargreaves Lansdown said.
Read more: Cost of living: 7 ways to cut the cost of petrol
“The 5p per litre cut introduced last April is also expected to come to an end this month, so Hunt might choose to extend it. A lot will depend on just where else the government needs to spend this money.”
If Hunt extends the temporary 5p a litre reduction from last year along with rejecting a rise in line with inflation, it will cost him about £5bn a year.
Every Conservative chancellor since 2011 has decided to freeze fuel duties.
The Spring budget is set to increase the maximum amount parents in receipt of universal credit can claim for childcare by “several hundred pounds”, the Treasury said.
The maximum universal credit childcare allowance has been frozen at £646 per month per child for years.
Costs will also start being paid out upfront, rather than in arrears, as part of a bid to help get people back into the workforce.
Full-time fees for a child under two at nursery reached an average of £269 a week last year, about £14,000 annually.
Read more: How to save money at the supermarket with picky kids
Jeremy Hunt will use the budget to announce an expansion of free childcare to cover one- and two-year-olds in England. The plan would provide an extra 30 hours a week to parents of one- and two-year olds, and increase funding by £288m by 2024-25 for the existing programme of free childcare for three-year-olds.
Business leaders have said the chancellor must find ways to help female business founders grow their companies as they are too often held back by crippling childcare costs.
Families with children aged one and two do not currently receive support to cover the period after parental leave ends and before free nursery hours are offered for three- and four-year-olds.
Laura Suter, head of personal finance at AJ Bell, said: “The government has mooted extending the ‘free’ hours of childcare to one- and two-year-olds, but this comes at a huge expected cost, with some estimates putting it at £10bn. The other issue is that the ‘free’ hours are anything but, with the government paying such a low fee to nurseries for these hours that parents have to foot the bill for top-ups and extras so nurseries can keep afloat.
Read more: Spring budget: Chancellor Hunt won’t have enough money to cut taxes or raise pay
“An alternative is to boost the tax-free childcare support, which currently gives up to £2,000 a year per child towards nursery costs. The government could increase this figure and vastly improve awareness of the failing scheme, where uptake has been 75% lower than expected at launch.”
Suter added that “the no-cost option” would be to change the ratios of adults to children at nurseries and childminders, allowing fewer staff to look after the same number of children.
UK businesses and corporation tax
Hunt will use the Spring budget to set out a new capital allowances regime for businesses, to offset a sharp rise in corporation tax and the end of a £25bn “super-deduction” tax break for investment.
Next month, corporation tax is due to increase from 19% to 25% on profits over £250,000 — bringing in around £12bn per year to the Treasury, according to government projections. This will kick in from 6 April.
The tax rise will hit businesses with profits of more than £250,000. Companies with profits between £50,000 and £250,000 will get marginal relief.
For those with profits of less than £50,000, there will be no change. These businesses will continue to pay corporation tax at 19%.
The chairman of NatWest (NWG.L), said the chancellor should resist the urge to cut corporation tax in the budget to create a more "stable environment" that avoids going "back and forth."
Howard Davies told the BBC's Today Programme that there was a risk of displaying a "lack of credibility" by changing the policy again.
Read more: Spring Budget 'likely to deliver cost of living support' amid borrowing boost
Bloomberg reported on Saturday that Hunt will hand businesses a three-year tax break worth £11bn by replacing the UK's investment allowance with a temporary measure.
Under this replacement full-expensing regime, companies will continue to save 25 pence on their tax bill for every one pound invested, the report said.
The proposed rules would replace the "super deductor" introduced in 2021 by Rishi Sunak when he was chancellor, which expires in April.
The "super deductor" allowed companies to claim 130% capital allowances on investments in plant and machinery.
Get over 50s back into work
Hunt on Sky News billed his Spring budget as a back-to-work statement, telling Sophy Ridge on Sunday he would “break down the barriers that stop people here in the UK from working”.
Older workers will be offered “returnerships”, offering flexible skills training that takes into account previous experience, with a further 8,000 “skills boot camp” places added to the 56,000 currently on offer.
Hunt is expected to announce the axing of the system used to assess eligibility for sickness benefits, meaning claimants can continue to receive the payments after they return to employment.
Read more: Why all employers should be doing stay interviews
The biggest reform to the welfare system in a decade will give them the opportunity to start work without fear of being reassessed and losing their benefits.
Hunt said: “For many people, there are barriers preventing them from moving into work — lack of skills, a disability or health condition, or having been out of the jobs market for an extended period of time.
“I want this back-to-work budget to break down these barriers and help people find jobs that are right for them.
“We need to plug the skills gaps and give people the qualifications, support and incentives they need to get into work. Through this plan, we can address labour shortages, bring down inflation, and put Britain back on a path to growth.”
A ramping-up of sanctions for claimants who do not look for or take up employment is also expected to be announced by the chancellor.
Read more: UK economy's return to growth boosts Hunt's spring budget plans
Hunt’s spring statement has been widely anticipated as a "placeholder" budget following a run of economic shocks after the COVID pandemic, the Russian invasion of Ukraine and the energy crisis, and the fallout from Liz Truss and Kwasi Kwarteng’s mini-budget.
The British economy has proved more resilient than many expected, but there is a long way to go.
Next week, I will set out the next stage in our plan to halve inflation, reduce debt and grow the economy - so we can improve living standards for everyone. https://t.co/AFsRAOZkNJ
— Jeremy Hunt (@Jeremy_Hunt) March 10, 2023
Hunt will deliver his Spring budget on Wednesday, however, an exact time has yet to be announced. It usually takes place after prime minister's questions, at around 12:30pm and can last up to an hour.
Watch: A glimmer of hope for public finances but don't expect giveaway spring budget
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