Sir Nigel Wilson, outgoing CEO of Legal & General, recently characterised the UK economy as ‘low growth, low wage and low productivity’, whilst urging us to do better. Chancellor Jeremy Hunt was determined to counter the ‘defeatists’ and talk up prospects for the UK as he delivered his second Budget against a rather better backdrop than his first one last autumn.
Having steadied financial markets last autumn with significant fiscal tightening in the aftermath of the Kwarteng Budget disaster, the Chancellor was keen to play up the extent to which we have avoided a recession, with the Office for Budget Responsibility (OBR) seeing the economy flat-line this year before growing again in 2024 (1.8%) and 2025 (2.5%).
Revelling in the International Monetary Fund’s endorsement of the government’s economic plan – a dangerous precedent should they change their mind again – he was delighted that the OBR saw inflation back below 3% by year-end, with the Budget deficit falling as a percentage of GDP in each of the forecast period years ahead. So with the twin horrors of inflation and government indebtedness moving in the right direction, this was a Budget for promoting growth. Many of the initiatives had been well-flagged or indeed pre-announced, such as the additional £5bn for defence over the next two years, albeit extended to £11bn over five years.
Maintaining the energy price cap at £2,500 for three months, equal tariffs for pre-payment meter customers to direct debit ones and the near-perpetual freezing of fuel duty tariffs were not going to excite headline writers. Money to support municipal leisure centres, poverty charities and a cut in draft beer duties played to the Westminster galleries.
Measures to tackle low business investment and the large inactive workforce were at the heart of this Budget. Twelve new investment zones had been well trailed, and consulting on greater regional financial autonomy, although the benefits of such moves are likely to be years in the making.
Replacing the capital spending super-deduction with three years of full tax allowances at a cost of £9bn was an immediate and catching move, together with targeted reliefs for small tech, life sciences and creative industry companies.
£20bn for carbon capture and storage projects, support for new nuclear, including small module reactors reinforced support for ‘industries of the future’, including AI and quantum computing, as well as moves to speed up regulatory approvals in pharmaceuticals and healthcare, to attract inward investment.
Whilst moves to free up trapped capital in pension funds to invest in supporting companies has to wait until the Autumn Statement, there were measures to ease the barriers to both disabled and non-disabled inactive workers returning to the workforce, alongside a gradual increase in subsidies for childcare.
Pension savings allowances were increased as indicated in recent days, but the headline surprise was not the lifting of the pension savings lifetime allowance, but its complete abolition. A benefit to higher earners, it remains to be seen if this will indeed stem the early retirement of NHS doctors it is in theory targeted at.
So a Budget with some incentives for companies to invest today, as well as longer-term initiatives to attract inward investment whilst trying to address some of the sources of the UK’s low growth, low productivity issues. Given the constraints on the public finances, this was probably about as good as it was going to get.
Glass half full or half empty will be your call.
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