Helping more people in the UK move into employment is expected to be a central theme of UK chancellor Jeremy Hunt’s spring Budget on Wednesday.
However, businesses should not expect radical changes to the direction Hunt has previously suggested he is taking with the UK’s finances – measures announced will be within the fiscal constraints Hunt has stressed the UK is operating under.
When Hunt sets out his spring Budget on Wednesday, he will do so buoyed by recent improvements to the UK’s short-term economic outlook. However, with the UK economy still facing challenges, we are unlikely to see a political high-risk appetite for major fiscal changes.
The chancellor has a difficult task. He is seeking to maintain the personal credibility that he has developed in stabilising UK finances following the growth plan fallout – a credibility reflected in the markets’ reaction to his measures to-date. However, he must do this in an environment of increasing political pressure. The government’s economic themes of halving inflation, growing the economy and reducing public debt will likely dominate the overarching message the chancellor delivers.
While the latest ONS statistics showed the government had a surprise surplus in January and the reduction in energy wholesale prices will likely reduce the cost to public finances of the government’s intervention in relation to energy bills, the chancellor is unlikely to use any headroom to immediately cut taxes. Indeed, income tax and capital gains tax changes are already in motion – further changes here are not anticipated.
The corporation tax rise is likely one of those measures that will be seen as totemic to the ‘stabilising’ theme, however, the chancellor may make a concession to his own rank’s tax-cutting instincts by announcing new low-tax investment zones that may become the new method of delivery of the ‘levelling up’ agenda. Clarity on the tax incentives that will underpin these zones may be forthcoming. It is also expected that the chancellor will restore the R&D tax relief for companies that can demonstrate significant spending in areas such as technology and AI.
Overall, measures will likely be aimed at demonstrating competence and fiscal restraint through difficult, systemic, and medium-term perspective policy delivery. Hunt has briefed an interesting overarching theme that may underpin his Budget: that the government is going to focus on getting people into work. His pitch will likely be that a strong economy provides families with job security.
As it’s a Budget, and a politically charged one at that, we will undoubtedly see new measures. Targeted personal tax relief aimed at getting people back into work may be one of those areas. The energy price guarantee increase may be delayed as a measure to ease pressure on household energy bills, although wholesale price decreases may make such a delay less expensive on the public purse than previously envisaged. Hunt may well also choose to extend the 5p cut to fuel duty for another year – a further cut to the rate itself seems unlikely.
Given the surplus in government finances it will be interesting to see whether the Budget announcement opens the door to a compromise on public sector pay demands to end the ongoing strike action – although the chancellor will be mindful that more generous pay offers than those already tabled could inhibit efforts to reduce inflation.
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