Jeremy Hunt is due to set out the government’s plans for tax and spending in his first budget on Wednesday. Meanwhile, the Office for Budget Responsibility (OBR) will publish updated economic forecasts and an assessment of the government’s finances for the next five years – running up to and beyond the next election. Here is what to expect.
Government finances
The OBR, which is independent of government, is expected to cut its inflation forecast for this year from 7% to nearer 4% and to provide a sunnier picture of economic growth, revising the projected fall from 1.4% to nearer 0.5%.
It is also expected to say that the spending deficit improved after a rise in tax receipts, mainly due to higher than expected inflation over the last year. Hunt could have as much as £30bn spare and still bring down borrowing over the life of the forecast, though he is likely to bank most of it, keeping aside a war chest to spend before next year’s general election.
Childcare
Answering the call to support parents struggling with sky-high childcare costs, Hunt will offer 30 hours of free childcare for one- and two-year-olds and a boost to funding for existing provision for three-year-olds at a cost of £4bn. This could be paid for in part by scrapping tax-free childcare for school-age children.
Separately, changes are planned to help with childcare costs for people in England, Scotland and Wales who are eligible for universal credit. Under the current system, parents can only reclaim the cost of childcare weeks after paying for it. This often leads to financial difficulties, with those on already tight budgets being forced into debt to cover the upfront costs.
Childcare refunds for those on universal credit have been capped at £646 a month per child for several years, cutting its value at a time of escalating childcare costs.
Hunt will say childcare refunds will be paid upfront, and there could also be an increase, possibly worth several hundred pounds a year, in the cap.
Pensions
A rise in tax-free saving for the wealthy is expected in the budget in an attempt to tackle the “pension trap”, which has led many professionals including NHS consultants and GPs to take early retirement.
Hunt is preparing a significant increase in the amount that can be set aside tax-free each year, and a rise in the cap on how much can be saved tax-free, known as the lifetime allowance (LTA).
The LTA is expected to rise to £1.8m, up from its current cap of £1,073,100. The annual allowance – the most a worker can save in their pension pots in a year before paying tax – is set to rise to £60,000 from its current mark of £40,000.
Investment
Tech hubs clustered around universities in England will benefit from almost £1bn in extra funding as part of a range of measures Hunt is introducing to boost business investment in the regions.
The chancellor will pledge to create 12 investment zones in eight areas, including the West Midlands and the north-east, “to drive business investment and level up” the country, each backed with £80m of government funding. These zones are similar but separate to the freeports created when Rishi Sunak was chancellor.
Expect a backlash against the schemes, which provide for tax subsidies and looser planning rules, from environmental groups concerned that the chosen sites will become green deserts.
Personal tax
Personal allowances are to be frozen, pushing more people into higher-rate tax bands and increasing the overall tax rate to 37% of GDP by 2027, according to the OBR, the highest rate since the second world war.
Energy subsidy
The cost of the energy price guarantee has fallen since Liz Truss pledged to keep average bills at £2,500 for two years at an estimated cost of between £72bn and £140bn.
Hunt made the policy less generous in November, and it was due to expire at the end of March, leaving households with estimated annual bills of just over £3,000. But a fall in wholesale prices since late December has reduced the cost to the Treasury still further, giving Hunt room to help households for a little longer. He is expected to announce an extension of the energy price guarantee until July, adding about £3bn to the taxpayer bill, bringing it to £29.4bn overall.
Public amenities
England’s struggling swimming pools are to be offered a financial lifeline in the budget with the creation of a £63m fund. Hunt will say he wants to ease the cost pressures on swimming pools with a one-year donation managed by Sport England.
Guardian research revealed that England had lost almost 400 pools since 2010, with parts of the country with the greatest health needs losing out the most.
