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Jeremy Hunt announces sweeping state-funded childcare reforms in Budget

Jeremy Hunt promised a major expansion in state-funded childcare and tax breaks for businesses in Budget measures aimed at boosting economic growth.

The Chancellor said a recession would be avoided and inflation would fall dramatically as the economy was “proving the doubters wrong”.

In an effort to remove barriers to work, he promised up to 30 hours a week of free childcare for eligible households in England with children as young as nine months, instead of three and four-year-olds under the current policy.

POLITICS Budget
POLITICS Budget

The phased policy, which will be fully introduced by September 2025, will be worth up to £6,500 a year for working families.

The plan will cost £4.9 billion in 2027-28, raising employment by 60,000 that year, as well as increasing the hours worked by mothers already in work.

He also pledged an expansion in wrap-around care at the start and finish of the school day for parents with older children and changes to staff-to-child ratios in England to expand supply of childcare.

Mr Hunt resisted demands from Tory MPs, including Boris Johnson, to scrap April’s increase in corporation tax from 19% to 25%, but he instead promised a generous set of reliefs to help firms reduce their bills.

POLITICS Budget
POLITICS Budget

A new policy of “full expensing” will mean that every single pound a company invests in IT equipment, plant or machinery can be deducted in full and immediately from taxable profit, a cut worth an average of £9 billion a year for every year it is in place.

It is “the most generous capital allowance regime of any advanced economy”, he told MPs.

The Chancellor also used the improved economic picture to promise an extension of support for household energy costs

He said the economy would avoid a technical recession – two consecutive quarters of shrinkage – although the Office for Budget Responsibility (OBR) still forecast a contraction of 0.2% this year, a significant improvement on the -1.4% predicted in November.

The OBR also upgraded its growth forecast for 2024 from 1.3% to 1.8%, but downgraded predictions for the following years to 2.5% in 2025, 2.1% in 2026 and 1.9% in 2027.

Budget 2023
Chancellor of the Exchequer Jeremy Hunt delivering his Budget (House of Commons/PA)

As part of a package aimed at helping with the cost of living, the Chancellor said the energy price guarantee, which caps average household bills at £2,500, will be extended at its current level from April to June.

It had been due to rise to £3,000 in April and the cost of scrapping the planned 20% increase will amount to about £3 billion.

The fuel duty freeze and the 5p cut will be maintained for another year, saving the average driver around £100.

Taking advantage of tax flexibility since leaving the European Union, a “Brexit pubs guarantee” will see duty on draught products up to 11p lower than in supermarkets.

The OBR forecasts that inflation in the UK will fall from 10.7% in the final quarter of last year to 2.9% by the end of 2023, partly due to the impact of the cost-cutting measures.

Opening his Budget statement, Mr Hunt told MPs: “In the face of enormous challenges, I report today on a British economy which is proving the doubters wrong.”

A technical recession – two quarters of negative growth – will be avoided, the OBR said.

Mr Hunt added: “They forecast we will meet the Prime Minister’s priorities to halve inflation, reduce debt and get the economy growing. We are following the plan and the plan is working.”

He said improvements in the picture for the public finances meant “more money for our public services and a lower burden on future generations”.

He also told MPs:

– Underlying debt is forecast to be 92.4% of gross domestic product (GDP) next year, 93.7% in 2024-25; 94.6% in 2025-26, and 94.8% in 2026-27, before falling to 94.6% in 2027-28.

-The deficit falls from 5.1% of GDP in 2023-24, to 3.2% in 2024-25, 2.8% in 2025-26, 2.2% in 2026-27 and 1.7% in 2027-28.

– The lifetime allowance for pensions savings, which stands at just over £1 million, will be abolished, a major tax-break for the wealthy.

– Some 12 new investment zones will be created, offering up to £80 million of support each for tax breaks and incentives.

– There will be tougher sanctions for benefits claimants who fail to meet requirements to look for work or choose not to take up a reasonable job offer.

The package of support on childcare is part of the plan to encourage more people back into employment.

All schools in England will offer wrap-around care either side of the school day for children by September 2026, the Chancellor said.

For younger children, the offer of free care for working parents will be available to those with two-year-olds from April 2024, covering around half-a-million parents, but initially limited to 15 hours.

From September 2024 the 15-hour offer will be extended to children from nine months, helping a total of nearly a million parents.

The full 30-hour offer to all under-5s will come in from September 2025.

The tax burden is still forecast to be at a post-Second World War high, reaching 37.7% in 2027-28.

In that year, the ratio of corporation tax receipts to  GDP is set to be the highest since the tax was introduced in 1965.

Living standards, based on real household disposable income (RHDI) per person, is expected to fall by a cumulative 5.7% over the two financial years 2022-23 and 2023-24 – less than forecast in November but still the largest since records began in 1956-57.

Labour leader Sir Keir Starmer said: “After 13 years of his Government, our economy needed major surgery, but like millions across our country, this Budget leaves us stuck in the waiting room with only a sticking plaster to hand.

“A country set on a path of managed decline, falling behind our competitors, the sick man of Europe once again.”

On the pensions lifetime allowance, he said: “The only permanent tax cut in the Budget is for the richest 1%. How can that possibly be a priority for this Government?”

The OBR said Jeremy Hunt had spent two-thirds of the £25 billion improvement in the financial position as part of his Budget, meaning debt was falling “only by the narrowest of margins” in five years’ time.

“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,” the OBR said.

“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.”