Chancellor Jeremy Hunt will present his latest Budget on Wednesday, 15 March, with businesses and households hopeful for some helpful measures on energy bills and elsewhere, though the government has been keen to emphasise its ‘fiscal responsibility’.
The spring speech will also be accompanied by updated fiscal and economic forecasts by the Office for Budget Responsibility (OBR), which economists expect to show some positive changes.
Following the surprise £5.4bn surplus in January’s public spending figures, the Treasury has a bit of leeway in what can be offered by Hunt.
Compared to the November OBR forecast, government spending and stronger revenues have resulted in borrowing being £30bn lower-than-expected, around 1.3% of GDP, according to its update last month.
Support for household energy bills via a new Energy Bills Discount Scheme replacing the energy bill relief scheme for another three months is a potential measure, according to leaks to the media last week, which is estimated to cost around £3bn.
There are also whispers that business energy bill support may also be extended for industries most exposed to elevated costs.
Hunt also faces a choice between increasing departmental budgets to allow a pay rise for public sector workers or subsidising motorists, according to the Institute for Fiscal Studies (IFS).
The UBS economists said they expect the fiscal space given to Hunt by lower borrowing to be used to increase the extend the freeze in fuel duties and sanction the settlement of public sector wage disputes.
On the energy price cap, leaving it unchanged would lower near-term inflation, they said, but "we think the Chancellor is likely to decide against it amid concerns around the medium-term inflation outlook and BoE policy response."
Tax cuts from Hunt could fuel inflation and so would be "at odds with the Chancellor’s present strategy targeting debt reduction and suppressing rising prices", said Charles Stanley (LSE:CAY) analyst Rob Morgan, suggesting tax changes will therefore be at the margin or longer term in nature.
"In the absence of rabbits pulled from hats, investors will need to live with the changes unveiled at the Autumn Statement, which involved a freezing of major tax bands and thresholds, a reduction in the dividend allowance and smaller capital gains tax allowance."
But, ahead of the budget, pressure is also being piled on the Chancellor by backbench MPs, various industries and newspaper columns from the likes of vacuum entrepreneur James Dyson, who's joined the companies such as BT and Tesco criticising the planned increase in corporation tax and the attempt to introduce levies on subsidiaries of multinationals, which some blame for the decisions such as from AstraZeneca to recently move a manufacturing plant to Ireland.
More details are also going to be sought on Hunt’s plan for growth, which he unveiled in January but was short on detail.
International competition for investment is heating up, with a flow of companies heading to the US to tap into the subsidies from President Biden's Inflation Reduction Act and the EU introducing its own big subsidy packages for clean tech.
On personal tax changes, Morgan said Hunt may make targeted tax changes with the aim of encouraging people back into work, particularly the over-50s, such as relaxing the pension lifetime allowance and the money purchase annual allowance (MPAA), with rumours also abounding that the chancellor may unveil tweaks to the state pension.
Other expected or hoped-for measures include:
- increasing the lifetime allowance for tax-free pension savings from £1.07mln to £1.8mln
- plans to help boost small and mid-cap company growth
- twelve low-tax zones in a bid to drive up investment in areas outside of London
- ending the 'pre-payment meter penalty' which often results in higher charges for low-income households
- maybe the Chancellor will pull a rabbit out of the hat to help ailing hospitality firms or listen to calls for an easing of legislation in the retail sector
- relaxing pension lifetime allowance rules to encourage older workers to return, allowing people to make larger pension contributions or making a permanent reduction in the lifetime ISA (LISA) withdrawal penalty