Budget 2023: living standards to fall by 6% and inflation to outstrip income growth say OBR

The Chancellor of the Exchequer, Jeremy Hunt, has left No. 11 Downing Street and has taken his seat in the House of Commons where he will deleiver his Spring Budget at 12.30pm on Wednesday.

Mr. Hunt addressed the Cabinet before making his way to the House of Commons and set out his aims for the Spring Budget.

“He set out the improved economic picture following his autumn statement, explaining it paved the way for this growth Budget,” said a No. 10 spokesperson.

“He referenced plans for deregulation with Brexit freedoms, plans to invest billions in carbon capture and storage and develop nuclear energy, a boost to levelling up through 12 investment zones across the UK and a significant package to help people get into work, ranging from support for the over-50s, those on benefits, parents, and those with long-term health conditions,” the spokesperson added.

A government scheme set-up to limit how much households all over the UK pay for energy has been extended for three months, according to reports.

The Energy Price Guarantee (EPG), which limits typical household payments to £2,500, was due to end at the end of March but will now run until June. The guarantee was due to rise to £3,000 meaning energy bills for millions of households were set to rise.

The move should protect customers until the end of June when prices are expected to drop to £2,100. The Chancellor Jeremy Hunt says the extension of the EPG "will bridge the gap and ease the pressure on families, while also helping to lower inflation" and explained the reason he is taking the decision to extend the scheme is because energy bills are "one of the biggest worries for families".

Prime Minister Rishi Sunak said extending the EPG was part of his government’s commitment to cut inflation by 50% before the end of 2023.

“We know people are worried about their bills rising in April, so, to give people some peace of mind, we’re keeping the energy price guarantee at its current level until the summer, when gas prices are expected to fall. Continuing to hold down energy bills is part of our plan to help hardworking families with the cost of living and halve inflation this year.”

The announcement comes on the day Chancellor Jeremy Hunt will announce his Spring Budget for the year ahead. Further details and announcements will be confirmed by the Chancellor in the House of Commons on Wednesday afternoon.

The Chancellor of the Exchequer Jeremy Hunt begins delivering his budget with the announcement that, according to a forecast by the Office for Budget Responsibility (OBR), the UK will not enter a technical recession this year.

The OBR also forecast that inflation will fall from 10.7% last year to 2.9% by the end of the year, Jeremy Hunt said.

Mr Hunt said: “Today, I will do something that was not possible when we were in the EU and significantly increase the generosity of Draught Relief, so that from 1 August the duty on draught products in pubs will be up to 11p lower than the duty in supermarkets, a differential we will maintain as part of a new Brexit pubs guarantee.

“British ale may be warm, but the duty on a pint is frozen.”

The Chancellor, Jeremy Hunt, had this to say about fuel duty: “Because inflation remains high, I have decided now is not the right time to uprate fuel duty with inflation or increase the duty.

“So here’s what I am going to do: for a further 12 months I’m going to maintain the 5p cut and I’m going to freeze fuel duty too. That saves the average driver £100 next year and around £200 since the 5p cut was introduced.”

Chancellor Jeremy Hunt announced 12 new investment zones describing them as “12 potential Canary Wharfs”.

“In England we have identified the following areas as having the potential to host one: West Midlands, Greater Manchester, the North East, South Yorkshire, West Yorkshire, East Midlands, Teesside and, once again, Liverpool.

“There will also be at least one in each of Scotland, Wales and Northern Ireland,” said Mr. Hunt.

Mr Hunt said: “To encourage the private sector investment into our nuclear programme, I today confirm that subject to consultation nuclear power will be classed as ‘environmentally sustainable’ in our green taxonomy, giving it access to the same investment incentives as renewable energy. Alongside that will come more public investment.

“Firstly, following representations from our energetic Energy Security Secretary I am announcing the launch of Great British Nuclear which will bring down costs and provide opportunities across the nuclear supply chain to help provide up to one quarter of our electricity by 2050.

“And secondly, I am launching the first competition for small modular reactors. It will be completed by the end of this year and if demonstrated to be viable we will co-fund this exciting new technology.”

The Chancellor said: “There are more than two million jobseekers in this group, more than enough to fill every single vacancy in the economy.

“Sanctions will be applied more rigorously to those who fail to meet strict work-search requirements or choose not to take up a reasonable job offer.

“For those working low hours, we will increase the Administrative Earnings Threshold from the equivalent of 15 hours to 18 hours at National Living Wage for an individual claimant, meaning that anyone working below this level will receive more work coach support alongside a more intensive conditionality regime.”

The Chancellor of the Exchequer, Jeremy Hunt, has announced he will increase the pensions annual tax-free allowance from £40,000 to £60,000. Mr. Hunt also announced his decision to abolish the Lifetime Allowance which was previously set at £1.07m.

Mr. Hunt said: “As Chancellor I have realised the issue goes wider than doctors. No one should be pushed out of the workforce for tax reasons. So today I will increase the pensions annual tax-free allowance by 50% from £40,000 to £60,000. Some have also asked me to increase the Lifetime Allowance from its £1 million limit. But I have decided not to do that.

“Instead I will go further and abolish the Lifetime Allowance altogether.”

Chancellor, Jeremy Hunt, has announced a major change to free childcare provision. The details include 30 hours of free childcare for children under the age of five years-old from the moment maternity care ends.

Mr. Hunt told MPs: “I today announce that in eligible households where all adults are working at least 16 hours, we will introduce 30 hours of free childcare not just for three- and four-year-olds, but for every single child over the age of nine months.

“The 30 hours offer will now start from the moment maternity or paternity leave ends. It’s a package worth on average £6,500 every year for a family with a two-year-old child using 35 hours of childcare every week and reduces their childcare costs by nearly 60%. Because it is such a large reform, we will introduce it in stages to ensure there is enough supply in the market.

“Working parents of two-year-olds will be able to access 15 hours of free care from April 2024, helping around half a million parents.

“From September 2024, that 15 hours will be extended to all children from 9 months up, meaning a total of nearly one million parents will be eligible. And from September 2025 every single working parent of under 5s will have access to 30 hours free childcare per week.”

Labour leader, Sir. Keir Starmer, has described the Chancellor’s budget as “dressing up stagnation as stability”.

"His opening boast was that things aren't quite as bad now as they were in October last year after the kamikaze budget. The more he pretends everything is fine, the more he shows just how out of touch they are.”

Mr. Starmer said the budget “leaves us in the waiting room with a sticking plaster”.

The Office of Budget Responsibility (OBR) forecasts living standards will fall by “6% over this fiscal year and next as inflation outstrips income growth”. This fall in living standards is the worst since records began in the 1950s.