This was a Budget for growth, Jeremy Hunt said today (15 March). But as the Chancellor spoke, the Office for Budget Responsibility warned that the economy would stagnate. It tweeted a graphic suggesting that the economy would shrink by 0.2 per cent this year – the worst forecast performance of any G7 country – with the economy only returning to its pre-pandemic size in mid-2024.
The story of the OBR’s forecasts, which were published alongside the Budget, is that the UK’s economic outlook is slightly less dismal than before. Living standards, for instance, are expected to fall by a cumulative 6 per cent across 2022-23 and 2023-24. Better than the 7 per cent fall predicted in November, but this would still be the largest two-year decline since records began in 1956-57. People won’t thank Hunt and Rishi Sunak for making a future forecast slightly less grim than it was before – particularly when those forecasts reflect the mistakes of their Conservative predecessors. That’s the central problem the government faces.
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There are other problems lurking in the details. Much of the Budget sought to stop people’s lives getting worse rather than actively making them better. Consider the extension of the energy price cap (ensuring the typical household’s bill is no more than £2,500) for three months, the freeze in fuel duty or full expensing for business investment in place of the “super-deduction scheme”. Plans to abolish the £1m cap on lifetime tax-free pension contributions will only benefit the 8,000 workers rich enough to reach the cap in the first place. The government boasts that the move will encourage people back to work but the main reason for employment inactivity is ill-health.
Hunt’s announcement on childcare was different. The plan to provide 30 hours of free childcare a week for children over nine months old will be welcomed by many voters. Hunt hopes it will encourage more people, especially women, back into work. The OBR believes this policy “has by far the largest impact on potential output in this Budget”. It’s also a wise political move in response to Labour’s plans to make childcare a key part of its manifesto. But these changes won’t come into effect for a while. Plans for all schools to offer wraparound care won’t begin until 2026. The childcare reforms won’t fully take effect until September 2025. As with many of the changes on business investment, it’s unclear whether the government will reap any political dividend before the general election expected next year.
In defiance of expectations, this was a strikingly activist Budget. The outlines of the Conservative Party’s next election campaign are becoming clear. The question that should haunt Hunt is whether voters will feel any changes between now and the next election.