U.K. Finance Minister Jeremy Hunt delivered the government's Spring Budget on Wednesday.
In a wide-ranging speech, Hunt said that the independent Office for Budget Responsibility had now forecast that the U.K. economy would not enter a technical recession in 2023, as was previously anticipated.
Inflation is now predicted to fall from 10.7% in the final quarter of 2022 to just 2.9% by the end of 2023.
Hunt announced a slew of tax and spending pledges for the next five years, affecting the labor market, pensions, childcare, defense and business investment, as the government seeks to address the country's sluggish economic growth prospects.
The Federation of Small Businesses said that a lack of targeted support for smaller companies in Wednesday's budget had left many feeling "overlooked and undervalued."
"The Chancellor has set high expectations for supporting small firms during these challenging times, but today's Budget will leave many feeling short-changed. The distinct lack of new support in core areas proves that small firms are overlooked and undervalued," Martin McTague, national chair of the FSB, said.
"On business taxes, it spends £27 billion extra on big businesses, arguing that small businesses are already catered for. This will leave to a feeling of being left behind," he added.
The U.K.'s Institute for Fiscal Studies, an independent research body, said that Wednesday's announcement looked like a "sensible set of changes" that could have a "marginal, but positive, impact" on the British economy.
The expanded childcare allowance could help "tens, but not hundreds, of thousands of parents into work — provided that it is appropriately funded," IFS director Paul Johnson said.
However, Johnson noted that the budget was equally as notable for what it left out, particularly regarding its failure to address widespread industrial action in the country.
"There was no funding to be found to improve the pay offer to striking public sector workers, where £6 billion might have been enough to make an inflation-matching pay offer possible this coming year. That's a political choice. Money for motorists, but not for nurses, doctors and teachers," he said.
Sterling traded lower following Hunt's budget announcements, falling around 1% to trade at $1.2031. Meantime, the British pound traded up around 1% against the euro at 0.8826.
The FTSE 100 also fell more than 3% amid a wider fall in European stock markets, with banking stocks leading losses following the fallout from global Silicon Valley Bank and more bad news for Credit Suisse.
In his retort in the House of Commons, main opposition Labour Party leader Keir Starmer blasted Hunt's Budget as "a Budget for growth that downgrades the growth forecast."
He accused the chancellor of "sticking plaster" politics and said the government's cupboard is "as bare as the salad aisle in the supermarket," with the economy having spent "13 years stuck in a doom loop" under Conservative governments.
"The only permanent tax cut in the budget is for the richest 1%. How could that possibly be a priority?" he asked lawmakers.
The OBR said in its report on Wednesday that the economic and fiscal outlook had "brightened somewhat" since the previous forecast in November.
"The near-term economic downturn is set to be shorter and shallower; medium-term output to be higher; and the budget deficit and public debt to be lower. But this reverses only part of the costs of the energy crisis, which are being felt on top of larger costs from the pandemic. And persistent supply-side challenges continue to weigh on future growth prospects," the OBR said in its executive summary.
"Against this backdrop, the Chancellor has spent two-thirds of the improvement in the fiscal outlook on his Budget measures, providing more support with energy bills and business investment in the near term, while boosting labour supply in the medium term. This lowers inflation this year and, more significantly, sustainably raises employment and output in the medium term. But it leaves debt falling by only the narrowest of margins in five years' time."
Hunt confirmed an additional 30 hours of free weekly childcare for children under the age of three. This will eventually cover all children from the age of nine months within school semester time and will apply in households where both parents are working.
Schools and local authorities will receive additional funding to support wraparound care between 8 a.m. and 6 p.m.
Parents claiming Universal Credit will receive monthly support of up to £951 for one child and £1,630 for two children, paid upfront.
The government is publishing a white paper on changes to disability benefits. This will include a potential abolition of work capability assessments and the separation of benefits entitlement from a person's ability to work.
Disabled benefit claimants will therefore be able to seek employment without running the risk of losing financial support. A new voluntary employment scheme will aim to spend up to £4,000 per person to assist disabled people in finding appropriate jobs.
Hunt also said the government will offer "Returnerships" for people over the age of 50 who wish to return to work, alongside skills boot camps and sector-focused work academies.
Universal Credit claimants will receive more rigorous sanctions for failing to demonstrate suitable efforts to find employment, while the threshold to claim for people working low hours will increase from 15 hours to 18 hours at the National Living Wage.
Hunt announces that the annual tax-free allowance on pension savings will rise from £40,000 to £ 60,000, while the Lifetime Allowance, previously set at £1.07 million, will be abolished.
Hunt announces plans to class nuclear power as "environmentally sustainable," providing access for nuclear producers to the same investment incentives as renewables.
Up to £20 billion will be allocated for early development of carbon capture and storage.
Small and medium-sized firms that allocate 40% of expenditure to research and development will qualify for a new tax credit, while new tax reliefs are announced for film, TV and video gaming will be extended.
Setting out the government's hopes for the U.K. to have the most pro-business tax regime in the world, Hunt announces a new investment allowance worth £9 billion per year, whereby every pound invested in IT, plant or machinery equipment can be deducted from profits.
The OBR forecasts that this will boost business investment by 3% per year.
Hunt announces an £11 billion increase to defense spending over the next five years, with another £30 million allocated to support veterans.
Hunt reveals the OBR is now forecasting that GDP will contract by just 0.2% in 2023, before growing by 1.8% in 2024. 2.5% in 2025, 2.1% in 2026 and 1.9% in 2027.
Unemployment is set to rise to 4.4%, with 170,000 fewer unemployed than initially forecast in the autumn.
Hunt announces that 12 new investment zones modelled on the regeneration of London's Canary Wharf. The new zones will be in the West Midlands, Greater Manchester, the North East, West Yorkshire, South Yorkshire, the East Midlands, Teesside and Liverpool, along with at least one in Scotland, Wales and Northern Ireland.
"Because of the decisions I take today and the improved outlook for public finances, underlying debt in five years' time is now forecast to be nearly 3 percentage points of GDP lower than it was in the Autumn," Hunt says.
In the Autumn Statement, Hunt set a target for public sector net borrowing to fall below 3% of GDP by 2027-28.
The OBR forecasts public borrowing to fall each year from 5.1% of GDP in 2023-24 to 1.7% in 2027-28.
Hunt says underlying government debt is forecast to be 92.4% of GDP next year, then 97.3%, then 94.6%, 94.8%, before falling to 94.6% in 27-28.
The government's 5p cut to fuel duty will be maintained and fuel duty will be frozen for the next 12 months, Hunt announces, saving the average driver £100 next year.
"Our Energy Price Guarantee, fuel duty and duty on a pint all frozen in today's Budget. That doesn't just help families, it helps the economy too because their combined impact reduces CPI inflation by nearly 0.75% this year, lowering inflation when it is particularly high," Hunt says.
Hunt announces a £63 million fund to keep public leisure centers and swimming pools afloat.
He also commits £100 million to "support thousands of local charities and community organizations."
A further £10 million will be spent over the next two years to help the voluntary sector "play an even bigger role" in suicide prevention.
Hunt confirms the pre-announced extension of the Energy Price Guarantee at £2,500 to the end of June.
Households on pre-payment meters, often among the U.K.'s poorest, will see their bills brought in-line with "comparable direct debit charges."
The OBR forecasts that inflation is projected to fall from 10.7% annually in the final quarter of 2022 to 2.9% by the end of 2023.
Chancellor of the Exchequer Jeremy Hunt is up and says the British economy is "proving the doubters wrong" as gilt rates, mortgage rates and inflation come down.
The Office for Budget Responsibility (OBR) now forecasts that the U.K. will avoid a technical recession in 2023.