Budget 2023: what it means for you

Jeremy Hunt unveiled his Spring Budget yesterday, telling MPs that “in the autumn we took difficult decisions to deliver stability and sound money” meaning that “today, we deliver the next part of our plan, a Budget for growth”. 

Hunt announced that underlying debt in five years’ time is expected to be nearly three percentage points lower as a proportion of gross domestic product (GDP) than forecast in the autumn. But despite a better-than-anticipated public finance position, and the fact the UK is now expected to dodge a recession this year, there were limited giveaways, with the tax increases announced in last year’s Autumn Statement going ahead as planned. 

Although the chancellor stressed the importance of driving growth, and there is the promise of a green energy plan to come at the end of the month, the measures were more restrained than those in the short-lived “Growth Plan” announced in September’s mini-Budget. Nevertheless, several of the measures are expected to impact the UK’s macroeconomic performance:

Pension reforms 

Since the start of the pandemic, the number of inactive workers (who are neither working nor looking for work) has increased by 500,000, with more than half of the increase in inactivity in workers aged between 50 and 64. 

In an effort to encourage older workers to re-enter the labour force, Hunt increased the cap on tax-free annual pension contributions to £60,000 from £40,000 and abolished the lifetime allowance completely. It was previously set at £1.07mn. 

Other measures

As expected, Hunt has extended the energy price guarantee (EPG) for a further three months. The end of the EPG would otherwise have seen typical household energy bills rise from £2,500 to over £3,000 in April. Hunt said that the change would ease pressure on families, while helping to lower inflation too.

The Office for Budget Responsibility fiscal watchdog now expects inflation to fall back to the 2 per cent target from 2024, and drop to 2.9 per cent by the end of this year.

The 23 per cent planned rise in fuel duty was scrapped for a year, at an expected total cost to the Treasury of around £5bn. From August, the duty on draught products in pubs will be up to 11p lower than in supermarkets as part of a new “Brexit pub guarantee”. 

An increase in defence funding over the next five years was also announced, though an increase in spending as a percentage of GDP will only rise from 2 per cent to 2.5 per cent when "fiscal and economic circumstances allow".

Economists have long suspected that Hunt would limit giveaways this month, preserving scope to loosen fiscal policy before the next general election. This must be held by January 2025, and will most likely be sometime next year. 

The Budget was announced against a backdrop of industrial action, with school, NHS, civil service and tube strikes all scheduled to take place on the day. No further details on a public sector pay settlement were announced, but the chancellor is said to be debating whether any pay awards should be in the form of permanent salary increases or one-off bonuses. Estimates suggest that an inflation-matching pay deal of 5.5 per cent over 2023-24 would add an extra £5bn to the total pay bill.

After the ructions caused by the Truss government last September, this was in many ways a more normal Budget - despite the fact that the fiscal policies announced for the next tax year are not far off, in absolute terms, the amount of easing announced six months ago. But in the context of strikes, financial market turmoil and falling real wages, it certainly doesn't yet feel like business as usual.