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.
The forecaster said the drop would be lower than previously expected but that real households’ disposable income per person would still tumble 5.7% over the two financial years 2022-23 and 2023-24.
Households will therefore feel the pinch more than at any point since 1957, according to the OBR.
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.
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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.”
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.”
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.
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Hunt explains childcare delay
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.
The owners of Visma, one of Europe’s biggest software companies, are close to hiring bankers for a £16bn flotation that would rank among the London market’s biggest for years.
Sky News understands that Visma’s board and shareholders have convened a beauty parade of investment banks in the last fortnight ahead of an initial public offering (IPO) likely to take place in 2026.
Citi, Goldman Sachs, JP Morgan and Morgan Stanley are understood to be among those in contention for the top roles on the deal, City insiders said on Friday.
Several banks are expected to be appointed as global coordinators on the IPO as soon as this month.
Visma is a Norwegian company which supplies accounting, payroll, HR and other business software to well over one million small business customers.
It has grown at a rapid rate in recent years, both organically and through scores of acquisitions, and has seen its profitability and valuation rise substantially during that period.
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The business is now valued at about €19bn (£16.4bn) and is partly owned by a number of sovereign wealth funds and other private equity firms.
The majority of the company is owned by Hg, the London-based private equity firm which has backed a string of spectacularly successful companies in the software industry.
Visma’s owners’ decision to pick the UK ahead of competition from Amsterdam represents a welcome boost to the City amid ongoing questions about the attractiveness of the London stock market to international companies.
Rachel Reeves, the chancellor, used last month’s speech at Mansion House to launch a taskforce aimed at generating additional IPO activity in the UK.
Spokespeople claiming to represent Visma at Kekst, a communications firm, did not respond to a series of enquiries about the IPO appointments.
Hg also failed to respond to a request for comment.
The American investment giant Carlyle is preparing to take control of Very Group, one of Britain’s biggest online retailers, in a deal that will end the Barclay family’s long tenure at another major UK company.
Sky News has learnt that Carlyle, which is the biggest lender to Very Group’s immediate parent company, could assume ownership of the retailer as soon as October under the terms of its financing arrangements.
On Friday, sources said that Carlyle was expected to hold further talks in the coming weeks with fellow creditors including IMI, the Abu Dhabi-based vehicle which assumed part of Very Group’s debts in a complex deal related to ownership of the Telegraph newspaper titles.
Carlyle will probably end up holding a majority stake in Very Group, which has about 4.5 million customers, once it exercises a ‘step-in right’ which effectively converts its debt into equity ownership, the sources said.
Very Group – which is chaired by the former Conservative chancellor Nadhim Zahawi – borrowed a further £600m from Arini, a Mayfair-based fund, earlier this year as it sought to stave off a cash crunch and buy itself breathing space.
Precise details of the company’s capital and ownership structure will be thrashed out before the change of control rights are triggered at the beginning of October.
The Barclay family drew up plans to hire bankers to run an auction of Very Group earlier this year, but a process was never formally launched.
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Carlyle, which declined to comment, may hold onto the business for a further period before looking to offload it.
IMI is also likely to end up with an equity stake or a preferred position in the recapitalised company’s debt structure, sources added.
Prospective bidders for Very Group were expected to be courted on the basis of its technology-driven financial services arm as well as the core retail offering which sells everything from electrical goods to fashion.
Retail industry insiders have long speculated that the business was likely to be valued in the region of £2.5bn – below the valuation which the Barclay family was holding out for in an auction which took place several years ago.
Very Group – previously known as Shop Direct – is one of the UK’s biggest online shopping businesses, owning the Very and Littlewoods brands and employing 3,700 people.
It boasts well over £2bn in annual sales, with about one-fifth of that generated by its Very Finance consumer lending arm.
Mr Zahawi was appointed as the company’s chairman last year, days after he announced that he was standing down as the MP for Stratford-on-Avon at July’s general election.
He replaced Aidan Barclay, a senior member of the family which has owned the business for decades.
In the 39 weeks to 29 March, Very Group reported a 3.8% fall in revenue to £1.67bn, which it said included “a decrease in Littlewoods revenue of 15.1%, reflecting the ongoing managed decline of this business”.
Nevertheless, it said sales in its home and sports categories were performing strongly.
IMI’s position is expected to be pivotal to the talks about the future of the business, given Abu Dhabi’s status as an important global backer of buyout, credit and infrastructure funds such as those raised and managed by Carlyle.
The UAE vehicle is expected to emerge from the protracted saga over the Telegraph’s ownership with a 15% stake in the newspapers.
Under the original deal struck in 2023, RedBird and IMI paid a total of £1.2bn to refinance the Barclay family’s debts to Lloyds Banking Group, with half tied to the media assets and the other half – solely funded by IMI – secured against other family assets including part of Very Group’s debt pile.
The Barclays, who used to own London’s Ritz hotel, have already lost control of other corporate assets including the Yodel parcel delivery service.
A spokesman for Very Group declined to comment, while IMI also declined to comment.
It had seemed simple enough. In her first budget as chancellor, Rachel Reeves promised a crackdown on the non-dom regime, which for the past 200 years has allowed residents to declare they are permanently domiciled in another country for tax purposes.
Under the scheme, non-doms, some of the richest people in the country, were not taxed on their foreign incomes.
Then that all changed.
Standing at the despatch box in October last year, the chancellor said: “I have always said that if you make Britain your home, you should pay your tax here. So today, I can confirm we will abolish the non-dom tax regime and remove the outdated concept of domicile from the tax system from April 2025.”
The hope was that the move would raise £3.8bn for the public purse. However, there are signs that the non-doms are leaving in such great numbers that the policy could end up costing the UK investment, jobs and, of course, the tax that the non-doms already pay on their UK earnings.
If the numbers don’t add up, this tax-raising policy could morph into an act of self-harm.
Image: Rachel Reeves has plenty to ponder ahead of her next budget. File pic: Reuters
With the budget already under strain, a poor calculation would be costly financially. The alternative, a U-turn, could be expensive for other reasons, eroding faith in a chancellor who has already been on a turbulent ride.
So, how worried should she be?
The data on the number of non-doms in the country is published with a considerable lag. So, it will be a while before we know the full impact of this policy.
However, there is much uncertainty about how this group will behave.
While the Office for Budget Responsibility forecast that the policy could generate £3.8bn for the government over the next five years, assuming between 12 and 25% of them leave, it admitted it lacked confidence in those numbers.
Worryingly for ministers, there are signs, especially in London, that the exodus could be greater.
Property sales
Analysis from the property company LonRes, shows there were 35.8% fewer transactions in May for properties in London’s most exclusive postcodes compared with a year earlier and 33.5% fewer than the pre-pandemic average.
Estate agents blame falling demand from non-dom buyers.
This comes as no surprise to Magda Wierzycka, a South African billionaire businesswoman, who runs an investment fund in London. She herself is threatening to leave the UK unless the government waters down its plans.
Image: Magda Wierzycka, from Narwan nondom VT
“Non-doms are leaving, as we speak, and the problem with numbers is that the consequences will only become known in the next 12 to 18 months,” she said.
“But I have absolutely no doubt, based on people I know who have already left, that the consequences would be quite significant.
“It’s not just about the people who are leaving that everyone is focusing on. It’s also about the people who are not coming, people who would have come, set up businesses, created jobs, they’re not coming. They take one look at what has happened here, and they’re not coming.”
Lack of options for non-doms
But where will they go? Britain was unusual in offering such an attractive regime. Bar a few notable exceptions, such as Italy, most countries run residency-based tax systems, meaning people pay tax to the country in which they live.
This approach meant many non-doms escaped paying tax on their foreign income altogether because they didn’t live in those countries where they earned their foreign income.
In any case, widespread double taxation treaties mean people are generally not taxed twice, although they may have to pay the difference.
In one important sense, Magda is right. It could take a while before the consequences are fully known. There are few firm data points for us to draw conclusions from right now, but the past could be illustrative.
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Are taxes going to rise?
The non-dom regime has been through repeated reform. George Osborne changed the system back in 2017 to limit it to just 15 years. Then Jeremy Hunt announced the Tories would abolish the regime altogether in one of his final budgets.
Following the 2017 reforms there was an initial shock, but the numbers stabilised, falling just 5% after a few years. The data suggests there was an initial exodus of people who were probably considering leaving anyway, but those who remained – and then arrived – were intent on staying in the UK.
So, should the government look through the numbers and hold its nerve? Not necessarily.
Have Labour crossed a red line?
Stuart Adam, a senior economist at the Institute for Fiscal Studies, said the response could be far greater this time because of some key changes under Labour.
The government will no longer allow non-doms to protect money held in trusts, so 40% inheritance tax will be due on their estates. For many, that is a red line.
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‘Rachel Reeves would hate what you just said’
Mr Adam said: “The 2017 reform deliberately built in what you might call a loophole, a way to avoid paying a lot more tax through the use of existing offshore trusts. That was a route deliberately left open to enable many people to avoid the tax.
“So it’s not then surprising that they didn’t up sticks and leave. Part of the reform that was announced last year was actually not having that kind of gap in the system to enable people to avoid the tax using trusts, and therefore you might expect to see a bigger response to the kind of reforms we’ve seen announced now, but it also means we don’t have very much idea about how big a response to expect.”
With the public finances under considerable pressure, that will offer little comfort to a chancellor who is operating on the finest of margins.