Jeremy Hunt has abolished the lifetime tax-free pensions allowance and introduced free childcare for youngsters under three in a budget aimed at getting people back to work.
The chancellor announced his budget plans on Wednesday to get older people back in work and to help parents, mainly women, who cannot afford to go back to work due to high childcare costs.
For older people – who he said he preferred to describe as “experienced” – Mr Hunt has increased the annual tax-free pension allowance and abolished the Lifetime Allowance.
• Annual tax-free pension savings allowance increased by 50% from £40,000 to £60,000
• Lifetime Allowance on pension savings scrapped so people will now be allowed to put aside as much as they can in their private scheme without being taxed (currently a £1m threshold)
Image: There will be no tax-free limit on private pensions
On childcare, Mr Hunt announced:
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• Ratios of two-year-olds to staff at nurseries can be increased from 1:4 to 1:5 – this is optional
• Parents on Universal Credit who are moving into work will have their childcare costs paid upfront by the government
• The maximum Universal Credit parents can claim will be increased to £951 for one child and £1,630 for two children – an increase of almost 50%
• Schools and local authorities will be funded to increase wraparound care so parents can have their children looked after between 8am and 6pm by September 2026
• In households where all adults work at least 16 hours, every child from nine months old to school age will get 30 hours of free childcare per week by September 2025
There will be a staggered introduction:
• 15 hours of free care a week for two-year-olds, from April 2024
• 15 hours of free child care for all children from nine months and up, from September 2024
• The free child care will not apply to those who work less than 16 hours a week, those studying or training.
The timetable for free childcare may never be realised
Jeremy Hunt’s childcare announcement is the rabbit out of a hat it was billed to be – 30 free hours for children from the age of nine months to the start of school.
But before parents of toddlers get excited about saving some of the eyewatering costs, take a look at the timetable.
Working parents of two-year-olds will get half of that – 15 subsidised hours – in a year’s time, from April 2024.
An election is expected that summer or autumn, with a deadline of January 2025.
And the full policy – including the most expensive bit, which is free hours for babies who have the highest staff-to-child ratios at one adult for every three children under two – will not be delivered until well after the election, in September 2025.
If Labour are in power then, they will need to find the money to deliver it. Their shadow education secretary Bridget Phillipson has already said Labour’s plans for a modern childcare system would not involve the “free hours” system which she says fails parents and providers.
The Office for Budget Responsibility, which provided a financial forecast alongside the budget, said the childcare changes would mean around 60,000 parents of young children would enter employment by 2027-28.
Talking at a nursery after delivering the budget, Mr Hunt admitted many more nurseries and childminders are needed to fulfil the 30 hours commitment.
“We’re willing to start it as soon as possible, but the advice we’ve had is this is such a big change in the market that it wouldn’t be possible to do it overnight,” said the chancellor.
While the Tories lauded the announcements as Mr Hunt’s “rabbit out of the hat” moment of the budget, childcare providers had a mixed reaction.
Neil Leitch, CEO of the Early Years Alliance, said changing the staff-to-child ratios is “appalling” and it is an economic decision that parents and teachers do not want.
“It’s not just about economics, children are not commodities, we’re talking about children’s lives,” he told Sky News.
He added that there is currently not enough funding for three and four-year-olds, who are entitled to some free childcare already, so this will simply place more pressure on providers.
“They should have done this a long time ago, parents are on their knees, providers are on their knees,” he said.
Image: Jeremy Hunt visited a nursery in Battersea after delivering the budget. Pic: Rory Arnold / No 10
Joeli Brearley, founder of Pregnant then Screwed, said the campaign group is “really pleased in the significant investment” in the childcare sector as it will make “an enormous difference to parents who are really struggling to pay for those eyewatering fees”.
However, she said they are concerned about the strategy for workers who are “leaving in droves” due to being paid “appallingly badly” due to years of underfunding.
“Without the workforce, those places are impossible to deliver,” she told Sky News.
“There’s no point in rolling out free hours if we don’t ensure the providers can deliver them.”
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1:11
Mums react to free childcare news
Labour hit out at the pension plan, with Sir Keir Starmer saying: “The only permanent tax cut in the budget is for the richest 1%. How can that happen?”
He accused the Conservatives of a plan for “managed decline, Britain going backwards, the sick man of Europe once again”.
“After 13 years of Tory sticking plaster politics… working people are entitled to ask am I any better off than I was before?” he said.
“The resounding answer is ‘no’ – and they (Tories) know it.”
Mr Hunt said he had decided to make the pension changes in reaction to senior NHS clinicians saying unpredictable pension tax charges are making them leave the NHS early “just when they are needed most”.
“I have realised the issue goes wider than doctors. No one should be pushed out of the workforce for tax reasons,” he said.
Donald Trump’s trade war escalation has sparked a global sell-off, with US stock markets seeing the biggest declines in a hit to values estimated above $2trn.
Tech and retail shares were among those worst hit when Wall Street opened for business, following on from a flight from risk across both Asia and Europe earlier in the day.
Analysis by the investment platform AJ Bell put the value of the peak losses among major indices at $2.2trn (£1.7trn).
The tech-focused Nasdaq Composite was down 5.8%, the S&P 500 by 4.3% and the Dow Jones Industrial Average by just under 4% at the height of the declines. It left all three on course for their worst one-day losses since at least September 2022 though the sell-off later eased back slightly.
Analysts said the focus in the US was largely on the impact that the expanded tariff regime will have on the domestic economy but also effects on global sales given widespread anger abroad among the more than 180 nations and territories hit by reciprocal tariffs on Mr Trump‘s self-styled “liberation day”.
They are set to take effect next week, with tariffs on all car, steel and aluminium imports already in effect.
Price rises are a certainty in the world’s largest economy as the president’s additional tariffs kick in, with those charges expected to be passed on down supply chains to the end user.
The White House believes its tariffs regime will force employers to build factories and hire workers in the US to escape the charges.
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5:07
The latest numbers on tariffs
Economists warn the additional costs will add upward pressure to US inflation and potentially choke demand and hiring, ricking a slide towards recession.
Apple was among the biggest losers in cash terms in Thursday’s trading as its shares fell by almost 9%, leaving it on track for its worst daily performance since the start of the COVID pandemic.
Concerns among shareholders were said to include the prospects for US price hikes when its products are shipped to the US from Asia.
Other losers included Tesla, down by almost 6% and Nvidia down by more than 6%.
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3:54
PM: It’s ‘a new era’ for trade and economy
Many retail stocks including those for Target and Footlocker lost more than 10% of their respective market values.
The European Union is expected to retaliate in a bid to put pressure on the US to back down.
The prospect of a tit-for-tat trade war saw the CAC 40 in France and German DAX fall by more than 3.4% and 3% respectively.
The FTSE 100, which is internationally focused, was 1.6% lower by the close – a three-month low.
Financial stocks were worst hit with Asia-focused Standard Chartered bank enduring the worst fall in percentage terms of 13%, followed closely by its larger rival HSBC.
Among the stocks seeing big declines were those for big energy as oil Brent crude costs fell back by 6% to $70 due to expectations a trade war will hurt demand.
The more domestically relevant FTSE 250 was 2.2% lower.
A weakening dollar saw the pound briefly hit a six-month high against the US currency at $1.32.
There was a rush for safe haven gold earlier in the day as a new record high was struck though it was later trading down.
Sean Sun, portfolio manager at Thornburg Investment Management, said of the state of play: “Markets may actually be underreacting, especially if these rates turn out to be final, given the potential knock-on effects to global consumption and trade.”
He warned there was a big risk of escalation ahead through countermeasures against the US.
Sandra Ebner, senior economist at Union Investment, said: “We assume that the tariffs will not remain in place in the announced range, but will instead be a starting point for further negotiations.
“Trump has set a maximum demand from which the level of tariffs should decrease”.
She added: “Since the measures would not affect all regions and sectors equally, there will be winners and losers as in 2018 – although the losers are more likely to be in the EU than in North America.
“To protect companies in Europe from the effects of tariffs, the EU should not respond with high counter-tariffs. In any case, their impact in the US is not likely to be significant. It would be more efficient to provide targeted support to EU companies in the form of investment and stimulus.”
British companies and business groups have expressed alarm over President Donald Trump’s 10% tariff on UK goods entering the US – but cautioned against retaliatory measures.
It comes as Business Secretary Jonathan Reynolds launched a consultation with firms on taxes the UK could implement in response to the new levies.
A 400-page list of 8,000 US goods that could be targeted by UK tariffs has been published, including items like whiskey and jeans.
On so-called “Liberation Day”, Mr Trump announced UK goods entering the US will be subject to a 10% tax while cars will be slapped with a 25% levy.
The government’s handling of tariff negotiations with the US to date has been praised by representative and industry bodies as being “cool” and “calm” – and they urged ministers to continue that approach by not retaliating.
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5:07
The latest numbers on tariffs
Business lobby group the CBI (Confederation of British Industry) said: “Retaliation will only add to supply chain disruption, slow down investment, and stoke volatility in prices”.
Industry body the British Retail Consortium (BRC) also cautioned: “Retaliatory tariffs should only be a last resort”.
‘Deeply troubling’
While a major category of exports, in the form of services – like finance and information technology (IT) – has been exempted from the tariffs, the impact on UK business is expected to be significant.
Mr Trump’s announcement was described as “deeply troubling for businesses” by the CBI’s chief executive Rain Newton-Smith.
The Federation of Small Businesses (FSB) also said the tariffs were “a major blow” to small and medium companies (SMEs), as 59% of small UK exporters sell to the US. It called for emergency government aid to help those affected.
“Tariffs will cause untold damage to small businesses trying to trade their way into profit while the domestic economy remains flat,” the FSB’s policy chair Tina McKenzie said. “The fallout will stifle growth” and “hurt opportunities”, she added.
Companies will need to adapt and overcome, the British Export Association said, but added: “Unfortunately adaptation will come at a cost that not all businesses will be able to bear.”
Watch dealer and component seller Darren Townend told Sky News the 10% hit would be “painful” as “people will buy less”.
“I am a fan of Trump, but this is nuts,” he said. “I expect some bad months ahead.”
Industry body Make UK said the 25% tariffs on cars, steel and aluminium would in particular be devastating for UK manufacturing.
Cars hard hit
Carmakers are among the biggest losers from the world trade order reshuffle.
Auto industry body the Society of Motor Manufacturers and Traders (SMMT) said the taxes were “deeply disappointing and potentially damaging measure”.
“These tariff costs cannot be absorbed by manufacturers”, SMMT chief executive Mike Hawes said. “UK producers may have to review output in the face of constrained demand”.
The new taxes on cars took effect on Thursday morning, while the measures impacting car parts are due to come in on 3 May.
Economists immediately started scratching their heads when Donald Trump raised his tariffs placard in the Rose Garden on Wednesday.
On that list he detailed the rate the US believes it is being charged by each country, along with its response: A reciprocal tariff at half that rate.
So, take China for example. Donald Trump said his team had run the numbers and the world’s second-largest economy was implementing an effective tariff of 67% on US imports. The US is responding with 34%.
How did he come up with that 67%? This is where things get a bit murky. The US claims it studied its trading relationship with individual countries, examining non-tariff barriers as well as tariff barriers. That includes, for example, regulations that make it difficult for US exporters.
However, the actual methodology appears to be far cruder. Instead of responding to individual countries’ trade barriers, Trump is attacking those enjoying large trade surpluses with the US.
A formula released by the US trade representative laid this bare. It took the US’s trade deficit in goods with each country and divided that by imports from that country. That figure was then divided by two.
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So, in the case of China, which has a trade surplus of $295bn on total US exports of $438bn, that gives a ratio of 68%. The US divided that by two, giving a reciprocal tariff of 34%.
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0:58
PM will ‘fight’ for deal with US
This is a blunt measure which targets big importers to the US, irrespective of the trade barriers they have erected. This is all part of Donald Trump’s efforts to shrink the country’s deficit – although it’s US consumers who will end up paying the price.
But what about the small number of countries where the US has a trade surplus? Shouldn’t they actually be benefiting from all of this?
That includes the UK, with whom the US has a surplus (by its own calculations) of $12bn. By its own reciprocal tariff formula, the UK should be benefitting from a “negative tariff” of 9%.
Instead, it has been hit by a 10% baseline tariff. Number 10 may be breathing a sigh of relief – the US could, after all, have gone after us for our 20% VAT rate on imports, which it takes issue with – but, by Trump’s own measure, we haven’t got off as lightly as we should have.