Jeremy Hunt has laid out a range of eye-catching proposals for tax and spending in his first Budget, provoking mixed reactions from economists, campaigners and politicians both in his own and opposition parties.
The chancellor’s “back-to-work” Budget is intended to encourage economic growth by boosting employment through measures including extending free childcare and lifting a cap on tax-free pension savings.
Here are some of the big giveaways and takeaways.
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Giveaways
Childcare
Amid mounting calls to help cut childcare costs, Hunt is extending the existing 30 hours of free childcare for 38 weeks of the year to children aged over nine months.
The current policy only applies to three- and four-year-olds. But under the changes, working parents of two-year-olds will be able to access 15 hours of free care from April 2024. From September 2024, that 15 hours will be extended to all children from nine months up, benefiting almost a million more parents.
And from September 2025, every parent who works more than 16 hours a week and has a child aged under five will have access to 30 hours free childcare per week.
Hunt is also introducing a pilot scheme paying between £600 and £1,200 to people signing up to the childcare profession, and nurseries will get a funding boost of £204m from this September, rising to £288m next year.
Energy subsidy
The government’s energy price guarantee, which caps average household bills at £2,500, will be extended for a further three months, from April to June.
The energy price guarantee had been set to expire at the end of March, but a fall in wholesale gas prices since late December has reduced the cost of the measure to the Treasury, allowing the chancellor to continue to help households.
“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,” said Hunt. Households with prepayment meters will pay for energy in line with customers on direct debit, he added.
Plans to raise the rate of fuel tax on petrol and diesel have been scrapped.
Pensions
The chancellor is planning a substantial increase in how much workers can put aside for their pensions each year and save overall in a lifetime while minimising tax. The annual tax-free allowance is to rise from £40,000 to £60,000, and the lifetime allowance, which stands at £1.07m, will be abolished.
However, the change is not expected to benefit many workers. Consultancy LCP told the BBC that the total number who had already exceeded the lifetime limit or who risk breaching it was 1.3m, which amounts to less than 4% of the UK’s current workforce.
Takeaways
Corporation tax
Despite months of lobbying by MPs and businesses, Hunt is increasing corporation tax from 19% to 25%. The move “is set to trigger a Tory backbench revolt”, said The Telegraph, but the chancellor has argued that any major tax cuts would currently risk destabilising public finances.
As he tried to “see off Tory tax rebels”, Hunt insisted that his Budget would help drive economic growth, telling the Commons that only 10% of companies will pay the full 25% rate.
But Tory MP Simon Clarke, a former member of Liz Truss’s cabinet who helped set up the pro-tax cuts Conservative Growth Group, told the paper that “this is a tax on jobs and growth”. He added: “It is very hard to see how it doesn’t have a chilling effect on the whole economy in a way which will cost every family in the country.”
To boost business investment, Hunt is rolling out a three-year 100% “full expensing” scheme, “allowing companies to offset all capital spending against their tax bill in the year it is incurred, a move costing an average of £9bn a year”, said the Financial Times.
Frozen personal allowance
Personal allowances remain frozen, “pushing more people into higher-rate tax bands and increasing the overall tax rate to 37% of GDP by 2027”, said The Guardian’s Phillip Inman. According to the OBR, that is the highest rate since the Second World War.
Hunt’s decision not to increase the personal allowance but to hike the pensions tax allowance has been met with criticism. Labour leader Keir Starmer said the Budget had benefited the “richest 1%” and was a “huge giveaway” for some of the wealthiest people in the country.
Childcare staff ratios
The government will change the existing minimum one-to-four staff ratio for children in England to one to five, in a bid to cut costs.
However, the Early Years Alliance, which represents around 14,000 childcare providers in England, said any relaxing of ratios would risk “severely compromising the safety and quality of care” and would add pressure on already overstretched carers during “a severe staffing crisis”.
