Spring budget: How does it impact you?

The Chancellor of the Exchequer Jeremy Hunt has delivered his spring 2023 Budget. His focus was on reducing inflation and public debt and to boost economic growth. However, although there were some positive announcements which will be welcomed by the UK population, many will still be faced with high tax bills, sticky wages and reduced disposable income.

Energy bills

Energy bill support is to carry on at its current level of £2,500 for another three months, until June 2023. The Energy Price Guarantee was introduced in October 2022 with the aim of reducing price increases for domestic customers, and this extension is expected to save the typical household £160. However, at the moment, what happens after June remains unknown.

The real winners here are those on pre-payment meters as the reforms will mean they pay the same energy bills as direct debit payers, and they will no longer be charged more.

Taxes

The Chancellor confirmed no increase in income tax, inheritance tax or national insurance thresholds, which is promising as the high cost of living crisis means a lot of taxpayers are experiencing sticky wages, with no increase in real wage rate as well as high inflation. People are still going to be squeezed for cash though as every other bill is increasing aside from income – council tax bills, broadband, phones, etc are all rising therefore people will still feel the squeeze on their income and savings.

Growth and inflation

While the inflation rate is still at the 10% mark, the Office for Budget Responsibility forecasts a 2.9% inflation rate by the end of the year. This is a much-reduced target from the earlier 7.4% predicted late last year, but whether this is possible remains to be seen. A 2.9% inflation will mean consumers could enjoy more disposable income and therefore have more money to spend on leisure and travel, for example, which of course would boost the economy. However, it is not convincing how the government hopes to get to that figure as there is no real explanation of how this will be achieved.

The 5p litre fuel cut introduced last year is also set to continue for another year. This is good news as it means that on average drivers will save about £100 next year.

Another significant announcement which may boost consumer confidence are the forecasts from the Office for Budget Responsibility that the economy will now not go into a recession. This goes against the previous forecast by the International Monetary Fund (IMF) that the UK economy will shrink by 0.6% in 2023. The next few months will be critical in determining the direction of the economy as there is still the strain of high cost of living, businesses are struggling to stay afloat and there is low demand by consumers. It will be interesting to see in which direction the economy moves – slow growth, no growth or a negative growth.

Childcare costs

Parents with children aged under five currently facing high childcare costs will now be able to benefit from 30 hours of free childcare a week. This new scheme is expected to save parents up to £6,500 a year. However, the funding for the scheme will be released at different times, therefore not all parents will enjoy the free childcare immediately.

Parents of two-year-olds will be able to access funding from April 2024, and parents of children aged nine-months and above will have access from September 2024. As the scheme does not start until later next year, childcare costs will remain high for a lot of families, giving them no relief for at least a year which may impact on employment in the coming year.

The government has promised to increase nursery funding from September 2023, which will also increase nursery spaces, thereby increasing supply which reduces the high cost of nursery fees. The ratio of staff to children from 1:4 to 1:5 will also help in increasing the number of children that can be catered for in a setting, driving down prices.

The childcare upfront cost for parents claiming universal credit is also a good initiative. It means these families can now put their children in childcare without having to pay-out initial costs by themselves. This will also help boost demand for nursery spaces.

The wrap-around care funding for primary schools, that is providing funding for breakfast and after school clubs, is also a good initiative for parents who would like to work full-time. It gives opportunities for parents to work full-time jobs without having to worry about childcare spaces or cost. However, this scheme will not start until 2026, which is a late policy and would be beneficial to be moved forward if possible.

Moving forwards

Overall, the spring Budget is a step in the right direction to boost the UK economy. However, households still face low disposable income, and bills are set to increase in April stiffening people’s already squeezed income. Prices are set to keep rising, albeit slowly, and businesses will still face rising overheads and depressed consumer spending.

The budget is safe and provides support for people in the interim, especially with energy bills. But it is uncertain what the inflation and growth forecast will be in the next three months when the fuel cap ends.