Budget 2023: Jeremy Hunt is set to deliver his first budget – here are the things to look out for

Jeremy Hunt will update the government’s tax and spending plans today as he delivers his first budget as chancellor.

The Office for Budget Responsibility (OBR) will publish its latest five-year forecasts for the economy and public finances.

In the statement, Mr Hunt is expected to focus on measures to support the government’s plan to halve inflation, grow the economy and reduce public debt.

Politics Hub: Follow the latest on the build-up to the budget

Insiders told Sky’s political editor Beth Rigby there will be two parts to the budget: a short-term support plan to provide immediate relief on the cost-of-living crisis and then the long-term plan for growth.

Here are some of the things to look out for when the chancellor delivers his statement:

Childcare support

A multibillion-pound expansion of free childcare for one and two-year-olds will form part of a surprise announcement in the Budget, Sky News has learned.

The chancellor will extend the provision of up to 30 hours a week of childcare to parents of children in this age bracket, in a move estimated to cost £4bn.

He is also expected to change the rules so that parents on Universal Credit are given more childcare and provided with the funding upfront.

The Treasury is also believed to be planning a cash injection of hundreds of millions into increasing the availability of the 30 hours of free childcare to three to four-year-olds.

The chancellor also plans to loosen staff to child ratios for two-year-olds, which could make the cost of childcare a little cheaper.

The package chimes with Mr Hunt’s hopes of getting more people back into the workplace as part of a wider bid to boost growth.

UK childcare costs are among the most expensive in the world, with full-time fees for a child under two at nursery reaching an average of £269 a week last year – equivalent to around £14,000 annually.

Tory MPs have been pressing the chancellor to make childcare more affordable in the March budget to reduce pressure on families and enable more women to re-enter the workforce.

Energy prices

Support for energy bills from the government is expected to continue for three months from April, protecting consumers from an average increase of £500 at a cost to the Treasury of around £3bn.

Sky News understands the chancellor will cancel a reduction in financial assistance that would have seen typical annual bills rise from £2,500 to £3,000.

Ministers have asked energy suppliers to prepare for both scenarios, fuelling a widespread expectation in the industry that the current energy price guarantee (EPG) will be maintained.

The EPG effectively caps the price households can pay and reimburses energy companies for the difference between that and the cost of buying power on wholesale markets.

The chancellor is also expected to announce fairness reforms so customers on prepayment meters are no longer charged more for their energy.

The so-called “prepayment premium” will be scrapped from July, enabling four million families to save £45 a year on their bills.

However, a planned withdrawal of the £400 winter discount that went to every household is expected to go ahead.

Read more: Sunak backs Hunt to remain as chancellor despite budget criticism

Work incentives and pension rules

Mr Hunt has previously spoken about getting Britain “back to work” by reducing the number of working-age people who are unemployed.

In the final quarter of last year, 8.89 million people aged 16-64 in the UK were “economically inactive”, according to the Office for National Statistics, with 28% saying long-term illness was why they were out of work.

Numbers have shot to record levels since the pandemic, and ministers believe reducing this is critical to lowering inflation, addressing the skills shortage and boosting growth.

In January, Mr Hunt promised to help get the long-term sick back to work and then directly appealed to retirees: “To those who retired early after the pandemic, or haven’t found the right role after furlough, I say – Britain needs you.“

The government is said to be drawing up plans to offer those over 50 a “midlife MoT” that will allow them to assess their financial health to woo them back to work.

Mr Hunt’s plan is said to include increasing the total amount workers can accumulate in their pension savings to £1.8m over a lifetime, up from £1.07m currently, before paying extra tax to try to persuade people to work for longer.

The chancellor could also increase the £40,000 annual cap on tax-free contributions to pensions to £60,000.

Another idea that has reportedly been mooted is encouraging GPs to issue sick notes focusing on employees continuing to work with support rather than being signed off altogether.

Fuel duty

Mr Hunt is facing pressure from Conservative MPs to extend the 5p cut to fuel duty for another year.

The measure was announced in March 2022 following a rise in pump prices after Russia invaded Ukraine.

Former home secretary Priti Patel is among 40 Tory MPs calling for the duty to remain frozen but preferably cut.

There was backlash following the autumn statement in November, when an accompanying OBR report said a “planned 23% increase” would likely see petrol and diesel rise by around 12p a litre, boosting government coffers by £5.7bn.

The Treasury said the figure was based on forecasts that “are subject to change” and decisions on fuel duty rates “will be made at the spring budget”.

If Mr Hunt were to raise fuel duty, it would be the first rate rise since 1 January 2011, despite government policy being that the rate should rise with inflation. For the last 12 years, successive chancellors have cancelled the inflationary increase.

Public sector pay

Below inflation pay offers have resulted in nurses, ambulance drivers, teachers, civil servants and rail workers all taking strike action in recent months.

Given high inflation, a mooted 3.5% average rise for next year, funded out of existing budgets, is unlikely to spell the end of industrial action.

There has been speculation the chancellor may announce back-dating some pay awards or one-off payments, but the Institute for Government thinktank says there are no “pain free” options for Mr Hunt.

The IFG says rejecting pay increases will “make it much harder for the government to address backlogs and other public service performance issues”.

However, they point out that funding increased pay from existing budgets “will likely necessitate painful cuts” to public services, while increasing budgets to accommodate higher wages would mean “increasing taxes, higher borrowing or cuts to other public spending”.

Corporation tax and investment zones

Next month, corporation tax is due to increase from 19% to 25% on profits over £250,000 – bringing in around £12bn to the Treasury year, according to government projections.

But business leaders and some Conservative MPs have called on the chancellor to soften the planned rate rise, given the headroom created by lower-than-expected borrowing. They argue the increase could exacerbate low levels of company investment in the UK.

As part of efforts to create incentives for investment, the government has confirmed Mr Hunt will set out plans for 12 new investment zones to “supercharge” growth in hi-tech industries.

Backed by £80m of investment over five years in each of the new zones, the aim is to accelerate research and development in the UK’s “most budding industries”.

The zones will be clustered around a university or other research institution and will be focused on one of a series of key sectors: technology, creative industries, life sciences, advanced manufacturing and the green sector.

Eight areas in England have been shortlisted: the East Midlands, Greater Manchester, Liverpool, the North East, South Yorkshire, the Tees Valley, the West Midlands and West Yorkshire.

The government is also in discussions with Scotland, Wales and Northern Ireland to establish the final four locations.

Read more:
Ian King explains the debate around corporation tax
Hundreds of thousands of small businesses could fold this year

Business groups have also been lobbying for new “full-expensing” rules that would allow them to deduct certain investments from taxable profits.

The proposed rules would replace the “super deductor” introduced in 2021 by Rishi Sunak when he was chancellor, which expires in April.

The “super deductor” allowed companies to claim 130% capital allowances on investments in plant and machinery. The policy was intended to provide an incentive for businesses to make additional investments and to bring planned investments forward, but some analysts have questioned its effectiveness.

Defence budget

Given the growing security threat posed by Russia and the impact of high inflation since the start of the conflict, what the chancellor says about defence spending will be watched closely.

The former prime minister Liz Truss had pledged to lift the defence budget from 2% to 3% of GDP by the end of the decade.

On Monday, the government presented its refreshed integrated review into defence spending and announced it will increase to £5bn over the next two years, with an “aspiration” to raise it to 2.5% of GDP “as fiscal and economic circumstances allow”.

The revised policy is aimed at countering intensifying threats from China and Russia but the funding is much lower than the up to £11bn extra Defence Secretary Ben Wallace is thought to have been pushing for.

Read more:
UK to spend extra £5bn on military
Shadow defence secretary calls on government to halt defence cuts

Edinburgh Festival

Up to £8.6m of funding for Edinburgh’s festivals is expected to be announced, including funding for a permanent headquarters for the Fringe festival.

Scotland’s festival economy contributes more than £300m a year to the UK and the chancellor is expected to outline his ambition to protect the festival economy and create jobs in Scotland.