Spring Budget 2023: When is it and seven predictions for Jeremy Hunt's statement
Melissa Lawford
7 min read
Jeremy Hunt will deliver his Spring Budget 2023 in the House of Commons - Jessica TAYLOR / UK PARLIAMENT / AFP
Jeremy Hunt will next week deliver the second major fiscal statement of his time as Chancellor amid intense pressure to cut taxes.
Falling energy prices and higher-than-expected tax revenues mean that the outlook for Mr Hunt’s Spring Budget is becoming a little less bleak. The Institute for Fiscal Studies, a think tank, estimates that borrowing this year and next will be £30bn less than previously expected.
But a temporary windfall from the Energy Price Guarantee does not open the door to long-term policy changes, with the Treasury consistently briefing that major tax cuts are off the table.
The IFS has warned that the Office for Budget Responsibility may still downgrade its growth forecasts, which in turn would shrink the Chancellor’s capacity to spend.
Here’s what to expect.
When is the Spring Budget?
Mr Hunt will deliver his Spring Budget in Parliament on Wednesday 15 March. The Chancellor normally delivers his statement after Prime Minister's Questions, which typically finish at 12.30pm.
His statement is likely to focus on the Government’s aims to halve inflation, reduce public debt and boost economic growth.
It will be accompanied by the latest economic and fiscal outlook from the OBR, the Government's spending watchdog.
Getting early retirees back to work
Mr Hunt’s primary focus with the Spring Budget will be to get Britain back to work. Excluding students, there are 6.6 million working aged adults who are classed as economically inactive. The number of people neither working nor looking for a job has jumped by more than half a million people in the last three years.
Treasury officials believe the number of people out of work is a major barrier to economic growth. Not only is it a problem for productivity, it is also fuelling inflation. A lack of staff is forcing employers to pay higher wages to attract people, which in turn is driving up prices.
Of the 6.6 million economically inactive people, more than a million people have taken early retirement.
Mr Hunt, who has personally urged over-50s who have taken early retirement to go back to work, is expected to unveil new measures to encourage and retain older workers in the labour force.
The Government is looking at expanding its “midlife MOT” scheme to offer financial health checks to 50 to 64-year-olds. Another option could be providing a tax incentive by lifting the pension lifetime allowance for senior doctors.
Getting long-term sick back into work
Another 2.5 million economically inactive people are classed as long-term sick and Mr Hunt also wants to get many of this group back into work.
One policy on the cards is a sick note crackdown. The Treasury has been working with the Department for Work and Pensions to change how GPs issue sick notes, with a focus on continuing work with support instead of getting signed out of the labour force altogether.
Another policy option is to reboot the benefits system, so that sick people who return to work part-time can continue claiming some sickness benefits.
A further 1.7 million are parents who are staying at home to look after their children. Think tanks have repeatedly flagged access to childcare as one of the most urgent and easily fixable issues that the government could target.
Energy bills support
The Government’s Energy Price Guarantee, which caps energy costs for households, is scheduled to rise from £2,500 to £3,000 on April 1. Support for businesses will also become more targeted.
Campaign groups such as Citizens Advice and business lobby groups have urged the Government to extend support to help protect the economy from still-high energy costs.
Emily Fry, of think tank the Resolution Foundation, said Mr Hunt should keep the energy bills support measure. This would cost around £3bn, she added.
Although energy prices are falling, households will see their energy bills spike by several hundred pounds this year as the government support is tapered.
Sanjay Raja, of Deutsche Bank, has said additional support could be a “rabbit out of the hat” policy for Mr Hunt.
However, in real terms it will only add around £4bn to the Government’s coffers as HMRC will also lose approximately £7bn in revenue from the energy windfall tax and corporation taxes on oil and gas companies as energy prices fall.
Mr Hunt has made clear signals that he does not favour blanket support. If he makes changes to the guarantee, he may take an approach that is more means-tested.
Fuel duty cuts
Fuel duty is supposed to rise by RPI inflation in April, which would add 7p to the price of a litre of fuel. A temporary 5p fuel duty cut, announced by Mr Sunak in March 2022, is also due to expire this March.
These two factors combined mean the cost of fuel duty will rise by 23pc – an extra 12p per litre.
Mr Hunt will likely step in and stop this. The RPI fuel duty increase has been cancelled by every chancellor every year since 2011, making it politically difficult for the current resident of Number 11 Downing Street to back a rise.
Mr Hunt has reportedly accepted that there is “strong precedent” for continuing the freeze, and is apparently keen to continue the 5p cut as long as it is clear that inflation is falling.
These two measures combined would cost the Treasury £6bn, according to Deutsche Bank.
Public sector pay
The Government is under pressure to commit to a stronger public sector pay deal to bring an end to the continual flow of strikes that are plaguing public services. “A resolution will likely feature a stronger pay deal in 2023-24,” said Mr Raja.
At the moment, existing departmental budgets will allow for a 3.5pc public sector pay rise. Mr Hunt may go further and announce a 5pc increase. This would cost £4bn, according to Deutsche Bank.
The Chancellor will be wary of working in opposition to the Bank of England, which is raising interest rates to tame inflation and has warned that large pay settlements could fuel price rises.
However, the Treasury has reportedly concluded that a 5pc increase for the public sector would carry a “low risk” of contributing to protracted high private-sector pay growth. There is even talk of backdating the payment.
Corporation tax rise
Despite warnings from a chorus of business leaders that higher taxes will hamper growth, Mr Hunt will almost certainly forge ahead with the planned rise in corporation tax rise scheduled to take effect from April.
The change, first announced by Rishi Sunak in his 2021 Spring Budget as chancellor, will see businesses face a six percentage point increase in the corporation tax rate, which will climb from 19pc to 25pc. This is expected to net £18bn a year for the Treasury.
The full force of this tax rise will hit businesses with profits of more than £250,000. Companies with profits of between £50,000 and £250,000 will get marginal relief.
For those with profits of less than £50,000, there will be no change – they will continue to pay corporation tax at 19pc.
Super-deduction axed
Just as corporation tax goes up, investment incentives are scheduled to be removed. The corporation tax super-deduction, which allows businesses to cut their tax bill by 25p for every £1 that they invest, will end on March 31.
