3 key announcements from Jeremy Hunt’s ‘back to work’ budget

Fol­low­ing the fall­out from Kwasi Kwarteng’s dis­as­trous mini bud­get six months ago, the first state­ment of 2023 was pitched by chan­cel­lor Jere­my Hunt as a blue­print for “long-term, sus­tain­able, healthy growth”.

Despite nar­row­ly avoid­ing a reces­sion, the UK econ­o­my has flat­lined. The Office for Bud­get respon­si­bil­i­ty (OBR) is fore­cast­ing an eco­nom­ic con­trac­tion of 0.2% in 2023, before return­ing to growth next year. The recent col­lapse of Sil­i­con Val­ley Bank – which sent shock­waves across the finan­cial mar­kets – has high­light­ed the pre­car­i­ous posi­tion the glob­al econ­o­my is in.

With­in the bud­get were a num­ber of mea­sures aimed at boost­ing busi­ness invest­ment and bring­ing some of the 8.9 mil­lion eco­nom­i­cal­ly inac­tive Britons back into the work­force. The chan­cel­lor will hope that these poli­cies will help the gov­ern­ment meet its aim of halv­ing infla­tion, grow­ing the econ­o­my and reduc­ing debt.

1 – Free childcare support

One of the biggest spend­ing com­mit­ments announced was a £4bn expan­sion of free child­care pro­vi­sion.

PWC’s lat­est Women in the Work­place report found that British par­ents earn­ing the aver­age UK wage will spend 29% of their income on child­care – one of the high­est pro­por­tions of any OECD coun­try.

The crip­pling costs, and the fact that the car­ing respon­si­bil­i­ty often falls to moth­ers, means that many women feel left with no choice but to drop out of the work­force. The Office for Nation­al Sta­tis­tics esti­mates that 1.1 mil­lion peo­ple don’t work because of car­ing respon­si­bil­i­ties – a mil­lion of which are women.

As part of the changes announced by Hunt, par­ents of one and two-year-olds will be enti­tled to 30 hours of free child­care per week. It is hoped that this will help par­ents of young chil­dren return to the work­force soon­er and will only apply to house­holds where both par­ents are in employ­ment.

The changes, how­ev­er, will be intro­duced in stages. Work­ing par­ents of two-year olds will be able to access 15 hours of child­care from April 2024. This will be extend­ed to all chil­dren more than nine months old in Sep­tem­ber 2024, before all under-fives are giv­en the full 30 hours free child­care per week from Sep­tem­ber 2025. 

Fund­ing will be made avail­able to schools and local author­i­ties to improve wrap­around care pro­vi­sion at the start and end of the work­ing day. This will allow par­ents to drop their chil­dren off at school between 8am and 6pm but will not come into effect until Sep­tem­ber 2026.

2 – Addressing economic inactivity

Child­care enti­tle­ment was not the only mea­sure aimed at address­ing the UK’s chron­ic labour short­ages. New incen­tives were also announced to per­suade over-50s, those on ben­e­fits, those in poor health, and peo­ple with dis­abil­i­ties, out of eco­nom­ic inac­tiv­i­ty and help fill the UK’s 1.1 mil­lion job vacan­cies. This has led some econ­o­mists to dub the Spring state­ment the “back to work” bud­get.

The Res­o­lu­tion Foun­da­tion claims that three-quar­ters of the 830,000 work­ing-age adults that left the labour mar­ket dur­ing the pan­dem­ic are aged over 50, many of whom have gone into ear­ly retire­ment. As a result, Hunt revealed a shake-up to cur­rent pen­sion rules in the bud­get, which are intend­ed to keep old­er work­ers from reduc­ing their hours or exit­ing the labour mar­ket as they approach retire­ment age.

The amount of mon­ey that work­ers can accu­mu­late in their pen­sion pots, before pay­ing addi­tion­al tax, will be increased from just over £1m to £1.8m. The annu­al tax-free pen­sion allowance, mean­while, will be increased from £40,000 to £60,000 per year and the £4,000 lim­it on pen­sion sav­ings, for those who have already dipped into their pri­vate retire­ment funds, will be put up to £10,000 per year.

How­ev­er, the relax­ation of the tax lim­its are only like­ly to ben­e­fit the high­est earn­ers, with Lane Clark & Pea­cock esti­mat­ing that only 1.3 mil­lion peo­ple are cur­rent­ly at risk of breach­ing the cur­rent life­time lim­it. 

An update to the Depart­ment for Work and Pen­sions mid-life MOT and the intro­duc­tion of return­er­ships –  a new type of appren­tice­ship for over-50s who wish to re-enter the work­force – round­ed off the new pro­vi­sions for old­er work­ers.

There were also changes for those who are eco­nom­i­cal­ly inac­tive due to long-term sick­ness or dis­abil­i­ty, includ­ing the scrap­ping of the Work Capa­bil­i­ty Assess­ment.

A new employ­ment scheme called Uni­ver­sal Sup­port will pro­vide £4,000 of fund­ing per per­son to help peo­ple with dis­abil­i­ties find appro­pri­ate employ­ment oppor­tu­ni­ties, with 50,000 places fund­ed each year. Hunt claims that with new work­ing mod­els that “make it eas­i­er to work from home”, peo­ple who are cur­rent­ly unable to work should be able to find posi­tions that suit them.

A £400m plan to increase the avail­abil­i­ty of men­tal health and mus­cu­loskele­tal resources was also announced, while the chan­cel­lor warned that “sanc­tions will be applied more rig­or­ous­ly” to those on Uni­ver­sal Cred­it who fail to meet the work-search require­ments or choose not to take up a rea­son­able job offer.

3 – Business tax shake-up

Hunt defend­ed the government’s plans to go ahead with a rise in cor­po­ra­tion tax, after Con­ser­v­a­tive MPs warned that it would have a “chill­ing effect” on the UK econ­o­my.

Cor­po­ra­tion tax is set to increase from 19% to 25% from next month, rep­re­sent­ing the biggest such rise in near­ly 50 years. The change comes along­side the expi­ra­tion of the super deduc­tion, which offered busi­ness­es gen­er­ous tax breaks for invest­ment in assets and equip­ment.

Replac­ing it will be a new scheme for full cap­i­tal expens­ing which will allow every pound a com­pa­ny invests in IT equip­ment, plant or machin­ery to be deduct­ed from its tax­able prof­its. Hunt says the change equates to a tax cut for busi­ness­es worth an annu­al aver­age of £9bn for the three years it will be in place. The OBR pre­dicts it will increase busi­ness invest­ment by 3% a year.

Hunt also announced 12 new Invest­ment Zones across the UK. The regions iden­ti­fied so far include West Mid­lands, Greater Man­ches­ter, the North East, South York­shire, West York­shire, East Mid­lands, Teesside and Liv­er­pool. He con­firmed that there will be at least one Invest­ment Zone in each of Scot­land, Wales and North­ern Ire­land.

The chan­cel­lor envi­sions each of these areas being “poten­tial Canary Wharfs” and areas that are suc­cess­ful in their bid will get access to £80m pounds of sup­port for a range of inter­ven­tions includ­ing skills, infra­struc­ture, tax reliefs and busi­ness rates.

The Annu­al Invest­ment Allowance for small busi­ness­es will increase to £1m, enabling 99% of busi­ness­es to deduct the full val­ue of all their invest­ments from their annu­al tax­able prof­its, and research-inten­sive busi­ness­es were also promised addi­tion­al tax breaks. SMEs that com­mit 40% of their total expen­di­ture to research and devel­op­ment will be able to claim back £27 for every £100 spent.

Will the ‘back to work‘ budget do its job?

Despite a rise in cor­po­ra­tion tax and the end of the super deduc­tion, the Con­fed­er­a­tion of British Industry‘s inter­im direc­tor gen­er­al believes the intro­duc­tion of full cap­i­tal expens­ing will be suf­fi­cient to “keep the UK at the top table for attract­ing invest­ment”.

How­ev­er, the direc­tor gen­er­al of the British Cham­bers of Com­merce She­vaun Hav­i­land struck a less opti­mistic tone, stat­ing that the “jury is out on how it will impact busi­ness­es com­pared to the super deduc­tion scheme”. She also shared her dis­ap­point­ment at the lack of ener­gy bill sup­port for busi­ness­es, with the cur­rent relief scheme set to end in April.

Although busi­ness lead­ers will wel­come many of the mea­sures aimed at encour­ag­ing peo­ple back to the work­force, with a num­ber of poli­cies being phased in, they will do lit­tle to address the labour short­ages com­pa­nies cur­rent­ly face.

Glassdoor’s UK econ­o­mist Lau­ren Thomas believes that child­care for work­ing par­ents and train­ing for ear­ly retirees are a good start, but “what impact this will have remains to be seen”. She warns that, despite the mea­sures announced today, hir­ing will remain dif­fi­cult through­out 2023 and “con­tin­ued long-term think­ing will be need­ed to meet the staffing cri­sis we face”.

Following the fallout from Kwasi Kwarteng’s disastrous mini budget six months ago, the first statement of 2023 was pitched by chancellor Jeremy Hunt as a blueprint for “long-term, sustainable, healthy growth”.

Despite narrowly avoiding a recession, the UK economy has flatlined. The Office for Budget responsibility (OBR) is forecasting an economic contraction of 0.2% in 2023, before returning to growth next year. The recent collapse of Silicon Valley Bank – which sent shockwaves across the financial markets – has highlighted the precarious position the global economy is in.

Within the budget were a number of measures aimed at boosting business investment and bringing some of the 8.9 million economically inactive Britons back into the workforce. The chancellor will hope that these policies will help the government meet its aim of halving inflation, growing the economy and reducing debt.