Spring Budget 2023: Reaction

The Chancellor of the Exchequer, Jeremy Hunt, presented his 2023 Spring Budget to Parliament on 15 March and published documents with further details.

Once the Chancellor finished his statement, the Office for Budget Responsibility (OBR) published updated forecasts and analysis of the economy in its economic and fiscal outlook.

As the Library briefing Background to Spring Budget 2023 explains, UK economic growth has been weak. High inflation has hit confidence and squeezed budgets, constraining the ability of households and businesses to spend. There are signs, however, that the economy is proving slightly more resilient than anticipated.

In his speech, the Chancellor said the Budget will tackle the UK’s productivity issues, such as having lower business investment and higher economic inactivity than other similar countries. He described it as a “Budget for growth”.

MPs gave their immediate reaction in the debate that followed  the Chancellor’s statement to the House of Commons.

Analysis

The Institute for Fiscal Studies (IFS) published an initial response to the Budget, in which IFS director Paul Johnson states the government “remains on track to meet its relatively loose fiscal targets by only the barest of margins” despite a “historically high tax burden”, which is set to increase through “big personal tax rises planned for next month.”  This response said that these increases in personal tax rises “may be necessary from a fiscal point of view” but are also “an important part of the reason why household incomes are still expected to fall more over the current two-year period than at any point in living memory.”

During introductory remarks made to an IFS event held on the morning of 16^th March, Johnson stated that while “the overall outlook for the public finances still looks difficult”, with debt “barely falling” owing to factors including “high debt interest payments, additions to debt that are not included in borrowing, and sluggish nominal growth”, the Budget did include “some elements of a sensible strategy to support growth”, including attempts to “deal with incentives to work and to invest.”

Analysis of the Budget published by the Institute for Government (IfG) argues that the fiscal rule to ensure debt is falling as a share of national income between 2026/27 and 2027/28 has “led to the chancellor making some suboptimal choices” and also “creates uncertainty for businesses about the UK government’s longer-term approach to taxation”. This analysis also argues that the Chancellor “would benefit from having a clear tax strategy”, as it would “help him to prioritise new measures and assess which are best value for money” and “make it easier for private sector actors to make long-term decisions”.

The Resolution Foundation’s Budget analysis, We’re going on a growth Hunt, states that the Chancellor delivered “a more action-packed Budget than many expected”, focused on boosting employment and investment, arguing that measures to boost employment will be more successful than measures to boost investment “in large part because of the biggest increase in free childcare ever announced”. This analysis goes on to argue that despite measures to help households with rising energy bills, family finances “will remain under strain from higher energy bills today, and tax rises tomorrow”.

The National Institute of Economic and Social Research (NIESR) response points out that OBR projections indicate the Chancellor will meet his fiscal targets for 2027/28, before asserting that this “focus on arbitrary targets is not what should determine fiscal policy”, arguing for a “new framework where the emphasis is on improving outcomes for UK households and different policies are independently examined”.

The NIESR analysis also criticises the decision to raise corporation tax from 19% to 25% for companies with over £250,000 in profits, as this will “will dampen GDP [gross domestic product] and hurt the supply side of the economy in the long run”, though this measure is “mitigated to a degree by the range of measures the government has announced to support business investment.”

NIESR went on to say it was “disappointing” that the Chancellor “failed to address public-sector pay, or announce more public investment, at a time of falling output and high inflation”.

Other reaction

Shevaun Haviland, the Director General of the British Chambers of Commerce, praised the Budget for acting “to address the unfilled jobs blighting our economy”, welcoming help on childcare and for workers over 50, before criticising the failure “to reform business rates” and inadequate action to help businesses with energy bills.

The Confederation of British Industry’s response described the Budget as “a strong second act in the Chancellor’s plan for stability and growth”, arguing it delivered support for both “people and productivity” and that plans for investment zones “will drive growth across the country”.

By contrast, the Federation of Small Businesses (FSB) response described the Budget as “a snub to small business strivers” and that the “lack of new support in core areas proves that small firms are overlooked and undervalued.” The response goes on to say that the Budget demonstrated “a clear lack of understanding of the role that SMEs will need to play in economic recovery” and failed to offer small businesses help on energy costs and did not “move to exempt more smaller firms from business rates.”

The Women’s Budget Group Budget response welcomed measures to support for childcare as “a really important first step in tackling the crisis in early education and childcare”, though “still far short of the full-time, year-round provision working parents need”.

Similarly, Joeli Brearley, founder and CEO of the charity Pregnant Then Screwed welcomed measures to allow mothers to return to work after the end of maternity leave, but raised concerns that the funding announced for childcare support was “not enough to reduce costs for parents sustainably”.

The Joseph Rowntree Foundation’s Budget response described the Budget as promising “in some areas”, such as childcare funding, before arguing that overall the Budget “failed to adequately address the challenges facing households, particularly those on low incomes”.

The Local Government Association (LGA) response welcomed the announcement of the third round of the Levelling Up Fund, which it argues will “give councils the opportunity to forge ahead with ambitious plans to transform their communities and unlock potential for more local growth”,  before arguing that levelling up should be “locally led by evidence of where crucial investment needs to go to, not based on costly competitive bids between areas”.

The Institute of Public Policy Research (IPPR) response argued that the Budget “contained small steps towards growth but fell short of the giant leap needed for serious, long-term progress”, as it fell short of implementing policies that would allow the UK to “compete with the US and EU in developing the green industries of the future” and that the government needed to “ramp up public investment and bring forward a green industrial strategy”. 

Zoë Billingham, director of the IPPR North welcomed the “trailblazer” deeper devolution deals for Greater Manchester and the West Midlands as “a huge step forward”, though ultimately felt that the Budget “fell short of truly ambitious action to shift the dial on regional inequality”.

Trades Union Congress General Secretary Paul Nowak argued that the Budget “did nothing to deliver” a high-wage and high-skills economy or address “the elephant in the room”, described as the “lack of funding for our public services and the pay rises needed to recruit and retain nurses, carers and teachers”.

The Taxpayers’ Alliance response described the Budget as “full of problems for taxpayers” as “spending increases in coming years” will “further frustrate households, whose rising tax bills are contributing to the biggest drop in living standards since records began”, while “increases in corporation tax “sends the wrong message to firms looking to do business in Britain”.

The Institute of Economic Affairs (IEA) response, while welcoming measures to “encourage business investment and boost productivity”, described the Budget as “nowhere near radical enough to jump-start the British economy” and that measures to increase economic activity are “unlikely to be particularly effective”.

By contrast, the Centre for Policy Studies (CPS) response welcomed “the range of measures to make work more attractive”, such as the decision to abolish the pensions lifetime allowance, reforms to make it easier for disabled people to re-enter the workforce and financial support for childcare, describing the Budget as “a calm, level-headed Budget, aimed at tackling the most obvious problems facing the country and the most immediate barriers to growth”.

Similarly, Connor MacDonald of Policy Exchange, writing in the Daily Express, called the Budget a “serious budget that tackles serious problems”, containing “some of the most significant labour market measures announced in decades”, praising the expansion of childcare provision and changes to the benefits system to encourage more people into the workforce, in such a way that “doesn’t consign those who can’t work temporarily or who are disabled to long-term joblessness”.

The Fraser of Allander Institute’s response states the Budget has “some interesting implications for Scotland”, including “significant Barnett consequentials” (changes to the Scottish block grant) of the expansion of childcare provision in England, though expansion of childcare provision in Scotland would require “additional funds, beyond these direct consequentials, to ensure all parents are covered”.

The Bevan Foundation’s response argues the Budget contains “very little” that will “provide support to households struggling with the cost-of-living crisis beyond the extension of the Energy Price Guarantee” and that is was “disappointing” that the Chancellor did not uplift Local Housing Allowance (LHA) rates, as a recent report by the Bevan Foundation has found that “there is an acute shortage of properties to rent at LHA rates in Wales.”

Political Parties

In his response to the Chancellor’s speech, Labour Party leader Keir Starmer described the Budget “dressing up stagnation as stability”, a “failure to grip the long-term challenges” and “a huge giveaway to some of the very wealthiest”.

Writing in the Daily Mirror, Shadow Chancellor Rachel Reeves described the Budget as “nothing but more sticking plasters and papering over the cracks”, while also accusing the Government of “poaching Labour policies.”

John Swinney, Scottish Deputy First Minister, described the Budget as “another missed opportunity as “another missed opportunity to take meaningful action to lift families out of poverty [and] invest in our public services and help businesses”, going on to say that while “the limited additional money for the Scottish Government’s Budget is welcome” it will “not go far enough and in the long-term our capital funding will fall in real-terms”.

Liberal Democrat leader Ed Davey criticised the lack of investment in the NHS and local services, stating the “Conservative Party doesn’t understand that you can’t get Britain ‘back to work’ without fixing the crisis in our NHS and social care.”

Speaking to BBC News, Plaid Cymru Treasury Spokesperson described the Budget as a missed opportunity to “set out an economic vision for the UK”, saying the Budget was lacking in “bold thinking on renewable energy” and action on levelling up.

Democratic Unionist Party Treasury Spokesperson Sammy Wilson welcomed the decision to freeze fuel duty, which he stated will be of particular help to Northern Ireland as it is “more heavily dependent upon road transport” than other parts of the UK, but argued “rhetoric about this being a Budget for growth may not live up to the hype”.

Sinn Féin MLA Conor Murphy called for the Northern Ireland Executive to be reformed to decide how additional childcare funding will be spent in Northern Ireland, though he argued that the “British Government’s budget does not address the continued financial pressures on our public services.”

Academics

This article published by The Conversation has a range of responses to the Budget from various academics in the fields of economics, business, public policy and accounting.