Budget 2023: UK economy will avoid recession in 2023 and inflation set to plummet, says chancellor
Jeremy Hunt said the British economy is “proving the doubters wrong” and will avoid recession, as he delivered his first full budget speech to Parliament.
The chancellor said the government’s plan for the economy was “working” as he announced what he called a “budget for growth”.
He said forecasts from the Office for Budget Responsibility (OBR) showed the UK would avoid recession – two-quarters of negative growth – in 2023, despite previous predictions.
But the economy will still contract overall this year by 0.2%, and the OBR has warned living standards are still expected to fall by the largest amount since records began – although the decline is not as bad as had been forecast in November.
Budget 2023 – read more:
Politics live: The budget as it happened and reaction
The key points of the budget at a glance
The OBR forecasts also said inflation in the UK would fall from 10.7% in the final quarter of last year to 2.9% by the end of 2023.
Mr Hunt said it showed Rishi Sunak’s goal of halving inflation this year would be met, but he added: “We remain vigilant and will not hesitate to take whatever steps are necessary for economic stability”.
However, Labour leader Sir Keir Starmer said the chancellor’s “boasts” about lower inflation were “ridiculous”, adding: “The idea that it’s a tax cut, British people can see through that.
“They see their tax burden at its highest level for 70 years and they know it’s not the government that’s lowering inflation.
“It’s working people, earning less, enjoying less. It’s their sacrifice that is helping to bring inflation down and they deserve better than another cheap trick from the government of gimmicks, making them pay whilst trying to claim the credit.”
Interest Rate Expectations
A number of other plans were unveiled by Mr Hunt, including:
• Bringing charges for prepayment meters in line with direct debit charges, impacting over four million households and saving them an average of £45 per year
• Making duty on draught products in pubs up to 11p lower than supermarkets
• Maintaining the freeze in fuel duty
The chancellor also said £11bn will be added to the defence budget over the next five years – following an announcement earlier this week – saying it would be nearly 2.25% of GDP by 2025. The government’s ambition is for it to reach 2.5%, he added.
And after reports he would increase the pensions lifetime allowance to £1.8m in an attempt to encourage doctors and other high earners back to work, Mr Hunt decided to scrap the limit entirely, as well as increasing the pensions annual tax-free allowance from £40,000 to £60,000.
He told the Commons: “In the face of enormous challenges I report today on a British economy which is proving the doubters wrong.
“In the autumn we took difficult decisions to deliver stability and sound money. Since mid-October, 10-year gilt rates have fallen, debt servicing costs are down, mortgage rates are lower and inflation has peaked.
“The International Monetary Fund says our approach means the UK economy is on the right track.”
But Sir Keir said the only permanent tax cut in the budget was for “the richest 1%”, adding: “How can that possibly be a priority for this government?”
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‘This a failure you can measure not just in the figures but in the empty pockets of working people,’ says the Labour leader.
The Labour leader continued: “Again we see a failure to grip the long-term challenges. No determination to create growth that unlocks the potential of the many – working people being made to pay for Tory choices and Tory mistakes.”
Some policies were revealed ahead of the chancellor’s speech, including keeping the cap on energy prices at £2,500 for a further three months, despite a planned rise to £3,000 in April, and 12 new investment zones.
Sky News also reported last night his promise to provide 30 hours of childcare a week to parents of one and two-year-olds, and to give a further cash injection to the sector to increase the availability of existing free childcare for three to four-year-olds.
But Mr Hunt went further on this measure, saying the care would be available from September 2024 when a child reaches nine months, as well as promising to increase funding for nurseries and pay those on Universal Credit upfront for the childcare they need to get.
However, he also confirmed the ratio for how many children each staff member looks after can be raised from one per four to one per five – though he said it was optional for both providers and parents.
There were more announcements to fit with Mr Hunt’s “three E’s” philosophy – enterprise, employment and education.
They included:
• Incentive payments of up to £1,200 for childminders who sign up to the profession
• Enhanced credit for small and medium businesses, and creative firms
• An extension to relief for theatres, orchestras and museums
• Tax relief on energy efficient measures in firms
• £900m investment into supercomputing
The chancellor also confirmed widely reported plans to abolish the Work Capability Assessment for disabled people to “separate benefit entitlement from an individual’s ability to work”.
Mr Hunt promised a new programme called Universal Support, describing it as “a new, voluntary employment scheme for disabled people where the government will spend up to £4,000 per person to help them find appropriate jobs and put in place the support they need”.
And he said there would be a £400m fund to help those who are forced to leave work because of a health condition to get support in the workplace.
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Chancellor Jeremy Hunt MP has announced that the energy price guarantee will remain at £2,500 until the end of June.
Mr Hunt confirmed he would keep the incoming rise in corporation tax – from 19% to 25% – despite anger from some of his own backbenchers.
But in a bid to keep businesses happy, he introduced a new benefit where every pound a company invests in equipment can be deducted in full and immediately from taxable profits – “a corporation tax cut worth an average of £9bn a year for every year it is in place”.
In what appeared to echo recent Labour policy, the chancellor announced continued state-financed investment in nuclear power and the launch of Great British Nuclear, saying the public body 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 he said nuclear energy would be reclassified as “environmentally sustainable” to give it the same access to investment incentives as renewables.
Today’s statement was Mr Hunt’s first full budget as chancellor – having been brought in by Liz Truss to reverse a number of measures from her disastrous mini-budget last October and kept on by Rishi Sunak after he took over as prime minister.
It came against a backdrop of mass industrial action, with hundreds of thousands of workers today staging what is believed to be the biggest walkout since the current wave of unrest began.
Teachers, university lecturers, civil servants, junior doctors, London Underground drivers and BBC journalists are among those taking to picket lines around the country amid widespread anger over pay, job security, pensions and conditions.
Labour’s shadow chancellor, Rachel Reeves, said ahead of the budget that it was “an opportunity for the government to get us off their path of managed decline”.
She added, if her party were in power, their focus would be on securing the highest growth in the G7.
“Our plan will help us lead the pack again, by creating good jobs and productivity growth across every part of our country, so everyone, not just a few, feel better off,” she added.
Our politics, business and finance reporters will be hosting a Q&A after the budget statement. To submit a question, click here.
World
Starmer and Zelenskyy discuss ending Russia’s ‘brutal war’ – as Putin says says he is open to bilateral talks on longer ceasefire
Sir Keir Starmer and Volodymyr Zelenskyy spoke about ending Russia’s “brutal war” on Ukraine in their latest phone call on Easter Monday, as Vladimir Putin said he was open to bilateral talks.
The prime minister and Ukrainian president spoke on Monday afternoon, when Sir Keir “reiterated his iron-clad support for Ukraine“.
A Downing Street spokesperson added that the prime minister “said that the UK supports Ukraine’s calls for Russia to commit to a full ceasefire and that now is the time for Putin to show he is serious about ending his brutal war”.
“They discussed the latest developments on the Coalition of the Willing, and looked forward to further progress towards a just and lasting peace,” the spokesperson added.
Mr Zelenskyy later said on social media that he had a “good and detailed conversation” with the prime minister, and added Ukrainian officials will be in London for talks on ending the war with Russia on Wednesday.
“We are ready to move forward as constructively as possible, just as we have done before, to achieve an unconditional ceasefire, followed by the establishment of a real and lasting peace,” he added.
The Ukrainian president added that the 30-hour Easter truce, which both Kyiv and Moscow accuse the other of violating, showed that Russia “are prolonging the war”.
It comes as Mr Putin proposed bilateral talks with Ukraine on a longer ceasefire, which would mark the first time Russia held such talks since a failed peace deal soon after the invasion in 2022.
Speaking to a state TV reporter, the Russian president said: “We always have a positive attitude towards a truce, which is why we came up with such an initiative (the Easter truce), especially since we are talking about the bright Easter days.”
When asked about Mr Zelenskyy’s calls to extend the 30-hour ceasefire into a 30-day pause on civilian targets, he added: “This is all a subject for careful study, perhaps even bilaterally. We do not rule this out.”
The Ukrainian president said on Sunday evening that the Russian army had “violated Putin’s ceasefire more than 2,000 times” during the day, and accused Russia of “failing” to “uphold its own promise of a ceasefire”.
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From Saturday: Why Putin offered an Easter truce?
It also comes after Donald Trump has said he hopes Russia and Ukraine “will make a deal this week,” after he and his secretary of state Marco Rubio warned that the US will walk away from efforts to broker a peace deal unless there are clear signs of progress soon.
The US president said on his Truth Social platform that both countries would “start to do big business” with the US after ending the war.
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Last month, Ukraine accepted Mr Trump’s proposal for a 30-day truce, but Mr Putin refused to back a full 30-day ceasefire, saying crucial issues of verification had not been sorted out.
He then said he would agree not to target Ukraine’s energy infrastructure. However, both sides have accused each other of breaking the moratorium on attacks on energy targets and at sea.
The Royal Navy’s flagship HMS Prince of Wales is to begin an eight-month deployment to send a “powerful message” of the UK’s naval and air power.
Operation Highmast will take in joint exercises and visits with 40 countries across the Mediterranean, Middle East, southeast Asia, Japan and Australia.
The £3bn aircraft carrier is scheduled to sail from Portsmouth on Tuesday, accompanied from the navy base by Type 45 destroyer HMS Dauntless, to join a formation of warships, supply ships and aircraft off the coast of Cornwall.
HMS Prince of Wales, as the biggest class of ship in the Royal Navy, is leading Carrier Strike Group 25 (CSG25) with the involvement of around 2,500 personnel from the Royal Navy, 592 from the Royal Air Force and 900 from the Army.
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King Charles visited the aircraft carrier in March
Later during the deployment, as many as 4,500 military personnel will be involved in exercises in the Indo-Pacific region. Forces from Norway, Canada and Spain are among 12 other nations taking part in operations.
The CSG’s first task will be to join a NATO exercise off France testing aerial defences before the ships move on to the Mediterranean to work with an Italian-led carrier force and then head east via the Red Sea.
HMS Prince of Wales pictured at Portsmouth Naval Base in February. Pic: PA
Other military assets include a contingent of up to 24 Royal Air Force F-35B Lightning fighter jets, Merlin Mk2 anti-submarine helicopters, Merlin Mk4 Commando and Wildcat helicopters along with T-150 Malloy and Puma drones.
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Royal Navy exercises on HMS Dauntless
Commodore James Blackmore, CSG commander, said the deployment would send a “powerful message” of the UK’s naval and air power.
He said: “It’s about supporting key trade routes that exist from the Indo-Pacific region to the UK, and supporting partners and allies in the region, showing that we are there as a capable and credible force should it be required.
“Operation Highmast will demonstrate credible deterrence and our support to NATO and the rules-based international order.”
Defence Secretary, John Healey MP, called it an “immensely complex operation” which sends “a powerful message of deterrence to any adversary”.
“This is a unique opportunity for the UK to operate in close coordination with our partners and allies in a deployment that not only shows our commitment to security and stability, but also provides an opportunity to bolster our own economy and boost British trade and exports,” he added.
US vice president JD Vance has arrived in Delhi for a four-day visit to India as the countries look to negotiate on tariffs, a bilateral trade deal and strengthen their ties.
Mr Vance was accompanied by his wife Usha – whose parents moved from India to the US – their three children Ewan, Vivek and Mirabel and fellow government officials as he landed on Monday morning.
The visit comes weeks after US President Donald Trump imposed and then paused a sweeping tariff regime against around 60 countries, including India.
JD and Usha Vance landed in New Delhi. Pic: Reuters
In a statement after their meeting in New Delhi, Prime Minister Narendra Modi‘s office said he “welcomed the significant progress” in negotiations for an expected trade deal between the US and India.
It added that he and Mr Vance “noted continued efforts towards enhancing cooperation in energy, defence, strategic technologies and other areas”, and also “exchanged views on various regional and global issues of mutual interest, and called for dialogue and diplomacy as the way forward”.
Mr Modi also “conveyed his warm greetings to President Trump” ahead of his visit to India later this year.
JD Vance and Narendra Modi in New Delhi. Pic: AP
An announcement was expected on the countries’ TRUST (Transforming Relationship Utilising Strategic Technology) partnership, a programme aimed at strengthening their cooperation in defence, critical minerals, AI, semiconductors, pharmaceuticals, energy and space.
The Trump administration is also pushing India to buy defence equipment.
JD Vance walks past troops after arriving in New Delhi. Pic: Reuters
The US is India’s largest trading partner, with bilateral trade valued at $190bn, with a trade deficit of about $46bn in India’s favour.
Both countries are engaged in negotiating a bilateral trade agreement and aim to double trade to $500bn by 2030.
Mr Trump has previously labelled India a “tariff king” and a “big abuser” on trade. He also recently shared a report which stated Indian tariffs on agricultural products were among the highest in the world.
The US president had slapped a 26% tariff on India, calling it a discounted rate against an average 52% duty on American products.
Over the weekend, Mr Vance met Pope Francis in one of the pontiff’s last public appearances before his death on Easter Monday.
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JD Vance and Pope ‘exchange Easter greetings’
Visit comes amid rising tensions with China
Mr Vance’s visit is also aimed at strategically balancing China’s growing influence in the Indo-Pacific region, with India seen as a counterweight of the two most populous countries.
China has warned it will take “resolute and reciprocal” countermeasures against countries that strike deals with the US at the expense of Chinese interests.
Relations between India and China have been tense over the years.
Dancers wearing traditional attire stand in front of a poster of Mr Vance. Pic: Reuters
The two countries, separated by the Himalayan mountain range, share a 2,000-mile border, most of which is not demarcated.
In 2020, in Galwan, soldiers of both countries had a face-off in which 20 Indian soldiers were killed. There was a national uproar and since then diplomatic relations have been low.
High-level military talks have been taking place to sort the border disputes, but have so far been inconclusive.
India’s move to strengthen ties with the US will increase friction with its northern neighbour, as China sees itself being isolated and targeted by the Trump administration.
Last week, China’s President Xi Jinping embarked on a tour of Vietnam, Malaysia and Cambodia, and said: “There are no winners in trade wars and tariff wars.”
Meanwhile, India has raised concerns over the treatment of Indian students who have received visa revocation notices in the US.
A survey by the American Immigration Lawyers Association found 50% of those reporting revocations were Indian. The US government has denied targeting Indians specifically with its actions.
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