Chancellor Jeremy Hunt will deliver his Spring Budget this Wednesday (March 15) as the cost of living crisis continues to place pressure on household finances.
Mr Hunt's plans are expected to focus on driving down inflation, which has seen the cost of goods and services across the country soar in recent months. Prime Minister Rishi Sunak indicated a similar intention, stating that "the number one economic priority I know that the country has is reducing the burden on the cost of living".
It comes after Mr Hunt's previous budget aimed to fix the economic turmoil caused by his predecessor Kwasi Kwarteng and former prime minister Liz Truss through a series of tax cuts. As with all budgets, what the Chancellor announces on Wednesday will have a direct effect on the British economy.
Read more: Everything that's going up in price from April - including energy bills, water, broadband and more
Ahead of the budget, Mr Hunt said he makes “absolutely no apology” for taking a responsible approach to the public finances. The chancellor has played down the prospect of major tax cuts in his plans, which could anger some Tory MPs.
Here's everything we can expect from Mr Hunt's statement in the House of Commons on Wednesday, and the key announcement to look out for.
Will the planned increase to the Energy Price Guarantee be axed?
One of the key announcements that Mr Hunt is expected to make is what will happen to energy bills from April. At the last budget in the autumn, it was announced that the Energy Price Guarantee (EPG), which caps the amount households are charged for energy, would rise from £2,500 to £3,000.
However, Mr Hunt has faced increasing pressure in recent weeks to scrap the planned rise to ease the burden on households, who are also facing council tax hikes and increases to water bills and mobile and broadband bills from next month.
Mr Hunt is now widely expected to announce an extension to the Energy Price Guarantee cap at £2,500 for an additional three months, according to the Times. The newspaper reported that the scheme will help 'bridge' the gap as companies wait for wholesale prices to fall below the energy price cap in July.
Energy regulator Ofgem announced it would cut the energy price cap by 23 per cent from April, bringing the average price for households from £4,297 to £3,280. The EPG would help protect from extra costs, with the government forking out the cash to fill the gap and paying it on behalf of billpayers. The latest projections suggest that the price cap could then fall below £2,500 in the summer.
Prepayment meter customers could see energy bills slashed
The chancellor is expected to announce a major change to prepayment energy rates in his Spring Budget. Prepayment meter customers tend to pay more on their bills when compared to direct debit customers because energy firms pass on the costs of managing the meters.
However, this could soon change as the extra costs could be covered by the government-funded Energy Price Guarantee. Meanwhile, Ofgem is expected to produce a report on how it could end the extra costs faced by prepayment customers in April 2024.
Energy Security Secretary Grant Shapps said: "Charging prepayment meter customers more to receive their energy is a tax on some of our most vulnerable - this change will stop that."
The Treasury has said it will end the “prepayment premium” from July, saving more than four million households £45 a year on their energy bills.
Major tax cuts unlikely as government tackles inflation rise
Mr Sunak has previously indicated that we should not expect any major tax cuts in the Spring Budget. The Prime Minister highlighted that the aim of the Budget was to reduce the rate of inflation and ease the cost of living crisis.
He said: “The number one economic priority I know that the country has is reducing the burden on the cost of living. That means halving inflation is critical because I want it to stop being the case that people are opening up their bills every week, every month and see them going up at such a rate.
“That is why our plan to reduce inflation is so critical. Inflation, as Margaret Thatcher described it, is the worst tax of all. Inflation is a regressive tax and at the moment that is what is causing everyone the problem, so actually it is right we focus on reducing inflation."
When asked whether he was in favour of tax cuts in the Budget if the economic picture improves, the former chancellor said he had been “very clear that my ambition is to cut people’s taxes”. But he added: “I think people recognise that Covid and now a war in Ukraine, and the impact that has had, has had a major damaging impact not just on the economy but on our public finances. I think everyone understands that.”
The British economy took a surprisingly positive turn at the start of the year with an economic growth of 0.3 per cent in January, according to official figures. However, economic growth has still continued to struggle.
In light of the current economic situation, Mr Hunt previously said: "In the face of severe global challenges, the UK economy has proved more resilient than many expected, but there is a long way to go. Next week, I will set out the next stage of our plan to halve inflation, reduce debt and grow the economy — so we can improve living standards for everyone.’’
Mr Hunt has been under pressure from a number of senior Tories MPs to pause the planned rise in corporation tax, which is due to increase from 19 per cent to 25 per cent in April. Speaking on Sunday morning broadcast shows, Mr Hunt said: “Within the bounds of what is responsible, we will always look to reduce the tax burden.” He said he wants the UK to have “the most competitive business taxes anywhere in the world” but stressed the need for companies to have “the stability that comes from being responsible”.
Extension to free childcare eligibility and upfront payments for benefit claimants
Mr Hunt has previously indicated his intentions to reduce the cost of childcare in his Spring Budget. Reports from the Guardian suggest that the 30 free hours of childcare currently offered by the government could be kept with even wider eligibility criteria.
Currently, all children aged three to four in the UK can receive up to 30 hours of free childcare a week, but reports suggest Mr Hunt could extend this to include children aged one and two as well.
A Department for Education spokesperson said: “We recognise that families and early years providers across the country are facing financial pressures and we are currently looking into options to improve the cost, flexibility, and availability of childcare.
“We have spent more than £20 billion over the past five years to support families with the cost of childcare, and the number of places available in England has remained stable since 2015, with thousands of parents benefiting from this.”
The government has also announced that it will start paying childcare costs on Universal Credit up front, rather than in arrears. It comes as part of a wider plan which aims to "remove barriers to people getting into work". The government said many low-income working parents are unable to afford the up-front cost of childcare, making it harder for them to get into work.
The maximum amount people can claim for childcare on Universal Credit will also be increased by several hundred pounds, the government said.
The Institute for Fiscal Studies welcomed the upfront childcare support and the rise in the cap parents on Universal Credit can claim, though it warned this will not “move the dial on childcare expenses for most low-income families” and benefit only tens of thousands of families – compared with more than 800,000 who are eligible.
Boosting workforce with a 'back to work' budget
It has already been confirmed that Universal Credit will receive some big changes in the new tax year, including a 10.1 per cent increase in payments. However, further big changes will be outlined in the Spring Budget as the government hones in on getting hundreds of thousands of people into work with a 'back to work' budget.
Benefit claimants are expected to be encouraged to move into work or increase their hours while increasing their meetings with work coaches and skills boot camps. The Chancellor is also expected to scrap the Work Capability Assessment - the system used to assess eligibility for sickness benefits.
The changes, which make up the biggest reform to the welfare system in a decade, will mean claimants can continue to receive the payments after they return to employment, according to the Treasury. The change will allow them to move into work without fear of being reassessed and losing their benefits.
The process is expected to be replaced with one that asks claimants to demonstrate what job they might be able to take, prompting disability equality charity Scope to warn that “disabled people shouldn’t be forced into unsuitable work”.
The chancellor will also set out plans to encourage over-50s to return to work through an expansion of skills training.
Mr Hunt said: "Those who can work, should work because independence is always better than dependence. Already we’re seeing near-record levels of employment in Britain, but we need to go further to build a country that rewards work and gives everyone the chance of a better future.
“But for many people, there are barriers preventing them from moving into work – lack of skills, a disability or health condition, or having been out of the jobs market for an extended period of time. I want this back-to-work Budget to break down these barriers and help people find jobs that are right for them.
“We need to plug the skills gaps and give people the qualifications, support and incentives they need to get into work. Through this plan, we can address labour shortages, bring down inflation, and put Britain back on a path to growth.”
Will the pensions cap be increased?
Mr Hunt could announce a significant rise to the pensions allowance in a bid to prevent workers from taking early retirement. A report from the Guardian, citing Whitehall sources, noted that middle-class professionals such as doctors are often forced into an early retirement because they face higher taxes on their pensions.
The annual allowance helps set the maximum amount a worker can save in their pension pots in a tax year before paying tax, currently, it is set at £40,000 a year.
There have also been reports that the UK state pension age could rise to 68 sooner than had been expected.
What might happen with fuel duty?
During his tenure as Chancellor in 2022, Rishi Sunak temporarily cut fuel duty rates from 57.95p per litre to 52.95p per litre during a period when fuel prices were increasing exponentially. The temporary 5p per litre fuel duty discount which came into effect last year is due to end shortly after the Spring Budget announcement.
If fuel duty rises in line with inflation this year, then that would add 7p to the price of a litre of fuel. It is understood that Mr Hunt is considering an extension to the 5p cut for another year in his Spring Budget but nothing has been confirmed yet.
Funding package for British veterans
The government has said that the chancellor will announce a special funding package worth £33 million for British veterans. The majority of the package (£20 million) will go towards the Veteran Capital Housing Fund which aims to provide extra housing for veterans through the development of new builds and refurbishments of social and charitable housing.
It is also understood that an extension to the Veterans Mobility Fund will be announced. Mr Hunt said: "We all owe our veterans a huge amount of gratitude for defending democracy and keeping our country safe – and it’s only right that we provide them with all the support they need when they come home.
“This government is firmly on the side of our veterans, and this week I’ll set out a comprehensive package of policies that will solidify our enduring commitment to our ex-servicemen and women for years to come.”
Customs system to be simplified
The UK’s 363,000 international traders will see a streamlined customs process under reforms to be announced in the budget. Mr Hunt is set to detail plans to cut red tape and simplify paperwork involved in moving goods in and out of the country, the Treasury said.
The changes would give traders six additional days to submit forms after border crossings, reducing admin burdens for business. They would need fewer authorisations and financial guarantees.
Mr Hunt said: “A simpler tax and customs system lets businesses focus on what they do best, creating wealth and generating economic growth, instead of getting tied up in red tape. Post-Brexit freedoms offer an outstanding opportunity for us to do this and I want to make sure we take full advantage of them.”
Read next:
