The UK government on Wednesday announced an increase in free childcare, expanded energy subsidies for households and increased investment incentives for businesses as ministers seek to lift the country’s economy out of stagnation.
Amid double-digit inflation, rising interest rates and widespread labor strikes, Chancellor of the Exchequer Jeremy Hunt outlined his plan to help Prime Minister Rishi Sunak fulfill the promise he made in January to boost the economy this year.
Mr Hunt presented his tax and spending plans to lawmakers in Parliament in a speech aimed at persuading them Economic growth that has been flat in recent months – while avoiding surprises that could shake Britain’s restored but fragile fiscal credibility.
“We remain vigilant,” Mr Hunt said on Wednesday. “I will not hesitate to take any steps necessary for economic stability.”
As he made the speech, young doctors working for the National Health Service, transit workers, some civil servants and teachers went on strike, adding to a spate of industrial unrest that began last year over higher wages. The Chancellor did not give any further details on how the government intends to end the strikes.
Mr. Hunt was appointed chancellor in mid-October during the turmoil of Liz Truss’ administration in an attempt to calm financial markets, which were roiled by Ms. Truss’ plans to cut taxes and increase spending. After almost all of Ms Truss’ economic agenda was scrapped, he was kept in his position by Mr Sunak while the new government worked to restore Britain’s fiscal credibility. Both men have since focused on being seen as competent and, frankly, dull compared to their predecessors.
The UK economic outlook, like many other advanced economies, has improved in recent months on lower wholesale natural gas prices and surprising consumer and business resilience.
The independent Office for Budget Responsibility on Wednesday raised its forecasts for the UK economy for this year and next. It forecast gross domestic product would fall 0.2 percent this year and the economy would avoid a technical recession, defined as two consecutive quarters of economic contraction. That’s a significant improvement since November, when the agency predicted the economy would contract by 1.4 percent this year.
UK public finances look better in the short term due to higher income tax revenues and lower spending on energy subsidies.
But the economy is currently stagnating. And the outlook further ahead is bleak, as economists lower their job market growth expectations and Brexit continues to hamper many businesses. The Office for Fiscal Responsibility has reduced its growth projections for three years from 2025.
Given Mr Hunt’s commitment to his fiscal rule to reduce Britain’s debt as a proportion of its gross domestic product, some economists have argued that he has not allowed himself room for big changes in taxes and spending. Personal income tax hikes continue and government department spending has been little touched.
Instead, Mr. Hunt announced a series of spending plans centered on his goal of getting “hundreds of thousands” more people into jobs, particularly for parents, those over 50 and recipients of government benefits. Concern is growing in Government that lower labor force participation since the pandemic is slowing the UK economy as people take early retirement and are marginalized by rising cases of long-term physical and mental health problems.
The number of people of working age who are considered “not in the labor force”, meaning not working or looking for work, is still about 490,000 higher than in the past, according to data from the Office for National Statistics released on Tuesday February 2020. About two thirds of them are over 50 years old.
In his address, Mr. Hunt said workers could save more money on their personal pensions without paying taxes, Mr. Hunt said. The change is intended to encourage people to work longer hours, particularly high earners such as senior doctors in the National Health Service.
While economists, such as those at the Resolution Foundation, have said convincing financially comfortable early retirees to return to work will be difficult, the government could use the policy to expand the labor force by restricting access to affordable childcare , health and workplace health improves other disability assistance.
The government has heeded the call for more childcare. The plan outlined on Wednesday would steadily improve access to free childcare for children over 9 months over the next few years. Previously, the government offered 30 hours of free childcare per week for children aged 3 to 4 of working parents.
Earlier in the week, Mr Hunt announced some other steps to tackle Britain’s “economic inactivity problem”, including changes to how childcare costs are paid to those who receive state benefits and revisions to how People with disabilities are assessed for work and extra money for skills training for people over 50.
In his speech, Mr. Hunt said the government would raise corporate taxes from 19 percent to 25 percent in April. But he said companies would benefit from tax breaks on investments, including the ability for companies to deduct the full cost of certain equipment from their pre-tax profits.
Early on Wednesday, the Treasury announced it would extend the government’s subsidy on household energy bills by three more months until the end of June, capping the average annual cost to £2,500, or about $3,000.
To encourage innovation, Mr. Hunt has also previously announced plans for investment zones around research facilities, areas that would receive tax breaks. In addition to changes to the customs systems, this includes efforts to reduce bureaucracy after Brexit and to make processes for international traders more efficient.
