Jeremy Hunt kicks off by telling MPs the British economy is “proving the doubters wrong”, and the OBR is now forecasting there will be no recession, after the gloomy projections made in the autumn. “We are following the plan and the plan is working,” he says.
Aubrey Allegretti, political correspondent: Hunt has the weight of his party and the country on his shoulders.
The first budget in 18 months – when the UK has had two chancellors come and go – carries huge implications for people struggling during the cost of living crisis, businesses concerned about economic stability, and the Conservatives’ polling deficit.
He nods to “difficult decisions” taken in the autumn and seeks to cajole grumpy Tory MPs by telling them “the plan is working”.
To try to boost their spirits, he declares “inflation has peaked” and gets huge cheers for declaring a recession looks likely to be avoided.
Cost of living support
After a vigorous campaign from the consumer rights champion Martin Lewis and many charities, Hunt confirms that the energy price guarantee will remain at £2,500 until July – it had been set to rise to £3,000.
The chancellor says: “Some people remain in real distress, and we should always remain ready to help when we can.”
He says the measure would save the average family £160.
Hunt also announces extra help for those with prepayment meters, saying he will “bring their charges in line with comparable direct debit charges”.
He also announces a £63m fund to help leisure centres and pools afford their energy bills, and £100m extra for charities facing soaring costs.
Aubrey Allegretti, political correspondent: Aware that energy prices are a big contributor to people feeling the strain, Hunt knows news that the energy price guarantee being kept at £2,500 from April until July will be welcomed. But he struggles to avoid smiling as opposition MPs laugh at his support for swimming pools – after this Guardian story.
Hunt says this will be a budget for “long-term, sustainable, healthy growth,” and it will deliver “prosperity with a purpose”.
He says the OBR expects inflation 10.7% in Q4 of last year, to 2.9% by the end of 2023 – meeting Rishi Sunak’s target of halving it.
Since the autumn statement, the OBR, along with many other forecasters, has become slightly less gloomy about the prospects for 2023. It is now expecting GDP to contract by 0.2%, instead of the 1.4% it predicted in November.
Hunt says that will be followed by growth of 1.8% next year, 2.5% in 2025 and 2.1% in 2026.
That compares with November forecasts of 1.3% for 2024, 2.6% for 2025 and 2.7% for the year after – so the OBR is expecting stronger growth in the next two years, but a slower recovery thereafter.
Aubrey Allegretti, political correspondent: While Hunt knows he needs to set as much distance between this budget and Kwasi Kwarteng’s disastrous mini-budget last September, he still needs to demonstrate a commitment to Liz Truss’s watchword – growth.
It is a key target of Labour’s, and restless Tory backbenchers need to be convinced they are not just propping up a government engaged in managed decline.
Hunt says growth is one of the PM’s five priorities, but defends his commitment to returning inflation to the 2% target and says it now looks poised to diminish to 2.9% by the end of the year.
There are some who think the inflation cut would have happened anyway and that Hunt and Sunak are giving themselves a pat on the back for something more dictated by global headwinds. Hunt will have to prove his plan is partly responsible for the positive news.
Hunt makes a nod to very public lobbying for higher defence spending by Ben Wallace, the defence secretary, paying tribute to his “persuasive” requests.
However, the £11bn investment is over the next five years, meaning defence spending will get up to 2.25% of GDP by 2025 – and Hunt will not put a timeframe on when 2.5% will be achieved.
His vague commitment that this will happen “as soon as fiscal and economic circumstances allow” will certainly not please all those Tory MPs who think defence spending needs to be taken much more seriously.
Hunt boasts that by the end of the forecast period, the government’s current budget deficit – day-to-day spending minus tax revenues – will be in surplus.
He says the OBR is expecting that he will meet his fiscal rule of keeping public sector net borrowing below 3% of GDP, with £39.2bn to spare, by the end of the forecast.
Public sector net debt was previously expected to peak at 97.6% of GDP in 2025-26, falling to 97.3% two years later.
It is now expected to hit a somewhat lower peak of 97.3%, falling to 94.6% by 2027-28.
As in the autumn statement, he says day-to-day spending will rise by 1% a year in real terms from next year to the end of the forecast period.
Aubrey Allegretti, political correspondent: The wind is in Hunt’s sails here, because of a higher-than-expected tax take providing some extra fiscal headroom.
This is well known, and Tory MPs expect the chancellor to make the most of it.
In a nod to it, Hunt says this will provide “more money for public services and more money for future generations” – something he calls “deeply held on values that we put into practice today” that earn him some cheers from Tory MPs.
It might not be as jazzy as the more retail spending commitments, but reducing debt was a hallmark of the coalition government – and Hunt is keen to stick at it.
The chancellor draws attention to the economy inherited by the Tories in 2010, seeking to rouse the backbenches and as an attack on Labour’s performance in government.
Channelling some boosterism, Hunt declares: “Declinists are wrong about our country.”
Hunt says the government plans to create a dozen new investment zones that could become “12 potential Canary Wharfs”.
He says areas including the West Midlands, Greater Manchester, Liverpool and Teesside had been identified as possible hosts, and they will need to develop proposals centred around universities or research institutes.
Successful applicants will be given £80m of support as well and allowed to retain some local taxes.
Hunt also announces an extra £400m for “levelling up partnerships” in areas including Redcar and Cleveland and Rochdale, as well as confirming the next round of city region transport settlements, which will be worth £8.8bn over five years.
He confirms that the West Midlands and Greater Manchester will get new multi-year devolution funding deals, and be allowed to retain business rates.
Aubrey Allegretti, political correspondent: It was the Boris Johnson government’s raison d’etre – but levelling up gets far fewer mentions these days.
Wary that it was a key part of wooing the 2019 winning coalition of voters that helped the Tories shatter the “red wall”, Hunt knows it remains a vital mission.
Truss-era ministers are understood to be frustrated with only 12 investment zones in higher-education hotspots going ahead. They believe the number is too low and that they will no longer fulfil “levelling up” in more deprived parts of the country.
Hunt’s nod to key constituencies such as Redcar and regions such as Teesside show there is still ambition to fight to keep the Conservatives’ hold in those areas.
Business tax and incentives
Hunt says he wants to create “the most pro-business, pro-enterprise tax regime anywhere”, despite confirming that he will go ahead with the planned increase in corporation tax – first announced by Sunak – from 19% to 25% in April.
He announces a new £9bn policy of “full capital expensing”, initially for the next three years, which allows firms to write off all investment against their tax bills.
Hunt says the OBR believes this will boost business tax by 3% a year.
He also announces a new “enhanced credit” for research-intensive businesses, worth £27 for every £100 they invest.
Hunt also extends “draught relief”, so that the duty paid in pubs will be up to 11% lower than elsewhere. He calls this a “Brexit pubs guarantee,” saying it would not have been possible inside the EU.
He also says he will put in place a new medicine regulator, which will give “rapid, often near-automatic approval for medicines and technologies already approved by trusted regulators in other parts of the world such as the US, Europe and Japan.
And he says he will offer a £1m a year prize for the next 10 years for the most innovative research in AI.
Aubrey Allegretti, political correspondent: The corporation tax rise is perhaps Hunt and Sunak’s weakest flank with Tory MPs. Former cabinet ministers Simon Clarke and Priti Patel have been breathing down the government’s neck on this.
The chancellor defends the rise, by saying it will still leave the UK with the lowest headline corporation tax rate in the G7.
His “tax cut” for capital expensing will give ministers another key line of defence – and comes with a hefty price tag of £9bn a year. It is a short-term boost for business investment, as Hunt acknowledges it won’t be made permanent until it is responsible to do so.
Ministers are often accused of reacting too slowly to unleash technology and innovation capabilities – meaning the UK lags behind faster competitors in the Middle East and Asia. The focus on AI is designed to counter that.
Energy and climate
Hunt announces £20bn of investment in carbon capture and storage, which he says will kick off with projects including Merseyside and Wales.
He says nuclear power will be classed as environmentally sustainable, giving it access to investment incentives.
Hunt also announces the creation of what he callsGreat British Nuclear, which he says will help to bring down costs, and says the government will launch a competition for the design of small modular Reactors – which could be co-funded by the government if they prove viable.
Aubrey Allegretti, political correspondent: There are two big reasons for this focus on energy. It has become more politically salient since gas prices shot up after Russia’s full-scale invasion of Ukraine and the net zero target looms closer.
Boosting nuclear is a way for the Conservatives to bash Labour, and Hunt acknowledges this – saying it is a “shame” the main opposition party did not champion the energy source when they were in government.
We get what might be the first gag by the chancellor this budget – something that is usually peppered more frequently in such statements. Hunt jokes that energy security is so important because “the sun doesn’t always shine – even under a Conservative government”.