Nevertheless, the OBR warned that this reverses only part of the costs incurred by the energy crisis; meanwhile, future prospects for growth are clouded by “persistent” supply-side problems. Elsewhere, real household disposable income (RHDI) per person – a measure of real living standards – is expected to fall by a cumulative 5.7% over the current and next financial year, representing the largest two-year decline in living standards since records began in 1956. 

Economic and fiscal forecasts

The Chancellor reported that UK economy is no longer expected to fall into recession in 2023, but is still predicted to shrink by 0.2% this year, compared with the OBR’s previous forecast of a 1.4% contraction. The economy is subsequently expected to grow by 1.8% in 2024, 2.5% in 2025, 2.1% in 2026, and 1.9% in 2027. The annual rate of consumer price inflation is forecast to fall to 2.9% by the end of 2023. 

The OBR confirmed that the two fiscal rules outlined at the Autumn Statement – that underlying debt must fall as a percentage of GDP by the fifth year of the forecast, and that public sector net borrowing must be below 3% of GDP over the same period – had been met. 

Pensions and employment

Measures were announced to boost the workforce, including plans to encourage the over-50s to return to work and to make it easier for disabled people to work without compromising their financial support. The Lifetime Allowance for pensions – currently set at £1.07 million – will scrapped and the Annual Allowance will be increased from £40,000 to £60,000 to provide an incentive for people to remain in the workplace.

Meanwhile, in a move designed to help working parents with childcare, 30 hours of free childcare will be introduced for children aged over nine months by September 2025. More wraparound care at schools will be funded and minimum staff-to-child ratios were relaxed and incentive payments of £600 will be paid to people signing up to become childminders. 

Fuel and alcohol duties

Fuel duty was frozen and the 5p cut in fuel duty was retained for another year. Duty on alcohol will rise in line with inflation from August this year; however, in a bid to provide support for the UK’s pub industry, duty on draught products sold in pubs will be up to 11p lower than those sold in supermarkets.

Support for energy 

The energy price guarantee, which was scheduled to end in April, was extended by three months, and households on prepayment meters will pay the same tariff as households who pay by direct debit.  Nuclear energy will be reclassified as “environmentally sustainable”, which will make it eligible for more investment incentives. The Government committed £20 billion over the next 20 years to the development of low-carbon energy.

Enterprise and innovation

Having highlighted enterprise as one of his key priorities, the Chancellor announced plans to boost innovation and support business investment, including reforms to capital allowances and support for research and development. Businesses can reduce their taxable profits through “full expensing”, allowing them to deduct business spending in full from taxable profits. 12 new “Investment Zones” will be introduced around the UK over the next five years, including eight in England and four across Wales, Scotland and Northern Ireland. An increase in the main rate of corporation tax – payable by companies with taxable profits of more than £250,000 – from 19% to 25% was confirmed. 

Mixed reactions to the Budget

The Spring Budget received a mixed response from business groups. The Confederation of British Industry (CBI)  hailed it as “a strong second act in the Chancellor’s plan for stability and growth” and praised the Government for delivering support for people and productivity. In comparison, the British Chambers of Commerce (BCC)  welcomed the measures supporting the labour market, but questioned the true benefit of the capital expensing plan for businesses, commenting: “They cannot invest when they are fighting to survive”. The BCC also criticised the Government for failing to reform business rates or to consider businesses in addition to households when extending the Energy Bills Relief Scheme.

The Institute for Fiscal Studies (IFS)  described the growth strategies set out in the Budget as “a sensible set of changes”, but pointed out that the personal tax increases planned for April 2023 will still go ahead, commenting: “These tax rises may be necessary from a fiscal point of view, but they are an important part of the reason why household incomes are still expected to fall more over the current two year period than at any point in living memory … We’re by no means out of the woods