What are the key elements of the Budget and the latest economic forecast?

What are the key elements of the Budget and the latest economic forecast?

After weeks of speculation and conjecture, Chancellor Jeremy Hunt has delivered what could be the last major fiscal event before the general election.

Following a huge day in Westminster, the details and implications will be pored over as political parties reassess their strategies and wait for evidence of how voters have reacted to the Government’s plans.

Here the PA news agency examines the key details and implications of the Budget and the latest economic forecast.

– What is the latest forecast for economic growth?

The Office for Budget Responsibility (OBR) has revised its forecast on growth upwards since the autumn statement last year, with the economy now expected to grow 0.8% this year and 1.9% next year.

(PA Graphics)

This is a slight improvement on the previous growth forecasts of 0.7% this year and 1.4 % in 2025.

Growth is expected to remain the same for 2026 at 2%, but the OBR slightly downgraded its 2027 forecast from 2% to 1.8%.

The Chancellor said the figures show the country “will soon have turned the corner on growth”.

He was keen to claim that since 2010 the UK economy has grown faster than Germany, France and Italy, adding “we will continue to grow faster than them for the next five years ahead”.

However, Labour points out that the UK economy does not compare so well with others when gross domestic product per capita is calculated, falling behind comparable countries.

– What about inflation, national debt and spending?

As expected, the inflation rate is expected to fall below 2% in a few months, well below what was required for Prime Minister Rishi Sunak to rightly claim he has met one of his five pledges to halve inflation.

UK annual inflation rate
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Meanwhile, underlying debt is forecast to be 91.7% of GDP this year, increasing to 92.8% next year, and Government spending is forecast to grow in real terms by 1% over the next five years.

– What did the Chancellor say about taxes on personal incomes?

Jeremy Hunt announced a further 2p cut to national insurance, having done the same thing in his autumn statement last year.

The starter rate for national insurance will change from 10% to 8%, affecting 27 million workers from April.

This is said to be worth an additional £450 a year to an employee on an average salary of £35,000.

National insurance rate for UK employees
(PA Graphics)

The Chancellor also announced a national insurance cut for the self-employed, with the rate falling from 8% to 6%.

This results in an average saving of £650 when combined with the cut announced last year.

– What other support has the Chancellor provided on tax and incomes?

Mr Hunt has tweaked the child benefits regime to address a perceived injustice.

The benefit is now to be paid to households where the highest-paid parent’s earnings are up to £60,000, rather than the current limit of £50,000.

Partial child benefit will be paid where the highest-paid parent earns up to £80,000.

The Chancellor also announced help for those on low incomes.

POLITICS Attitudes
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He has extended the repayment period for people receiving benefits who take out emergency loans to help with budgeting, while a £90 fee charge for obtaining a debt relief order has been scrapped.

Meanwhile, the fund for people struggling with cost-of-living pressures has been extended for six months.

Fuel duty has been frozen again and the higher rate of property capital gains tax will be reduced from 28% to 24%, with the Chancellor arguing this will result in  more revenue being generated.

– Which other tax measures were announced that did not involve cuts or extending support?

To ensure his Budget also generated revenue the Chancellor announced a range of changes.

Insisting that those with the “broadest shoulders” will pay more, Jeremy Hunt committed to scrapping the non-dom tax status, with the £2.7 billion a year raised as a result put towards tax cuts.

Mr Hunt also said stamp duty relief for people buying more than one dwelling will be scrapped from June, saying the system had regularly been abused. This will raise £385 million a year.

Meanwhile, the abolition of the furnished holiday lettings tax regime from April 2025 is expected to raise £245 million a year.

The Chancellor confirmed a freeze on alcohol duty would be extended until February 2025, while a new tax on vaping products is planned to start in October 2026.

Tax on tobacco is to increase, with Mr Hunt saying this would maintain the “financial incentive to choose vaping over smoking”.

The levy paid on flights will also go up for business class tickets, while the “windfall” tax on the profits of energy firms, which had been scheduled to end in March 2028, will be extended until 2029.

Chancellor of the Exchequer Jeremy Hunt leaves 11 Downing Street, London, with his ministerial box before delivering his Budget in the Houses of Parliament
Chancellor of the Exchequer Jeremy Hunt leaves 11 Downing Street, London, with his ministerial box before delivering his Budget in the Houses of Parliament (Stefan Rousseau/PA)

The Chancellor also said he will provide HMRC with extra resources “to ensure everyone pays the tax they owe”, with a view to increasing revenue collected by £4.5 billion over five years.

– What impact will the Budget have on the Government’s spending plans?

The Chancellor said the measures announced mean he can maintain previously planned annual growth in day-to-day spending at 1% in real terms.

But he insisted the Government will “spend it better” with a new approach to boosting the delivery of public services.

Citing the OBR, Mr Hunt said “an increase in public sector productivity would be the equivalent of around £20 billion in extra funding”.

This includes fully funding an NHS productivity plan costing £3.4 billion, with the aim of improving IT systems and freeing up the time of doctors and nurses.

“We will slash the 13 million hours lost by doctors and nurses every year to outdated IT systems,” Mr Hunt pledged.

Prime Minister Rishi Sunak and Chancellor of the Exchequer Jeremy Hunt meet staff during a visit to a builders' merchant in south-east London, after the Chancellor delivered his Budget at the Houses of Parliament
Prime Minister Rishi Sunak and Chancellor of the Exchequer Jeremy Hunt meet staff during a visit to a builders’ merchant in south-east London, after the Chancellor delivered his Budget at the Houses of Parliament (Kirsty Wigglesworth/PA)

On public services more broadly, the Chancellor said he would prioritise proposals that deliver annual savings within five years.

This will initially include allocating £75 million to rolling out more violence reduction units, cutting admin for police officers and improving police response times.

Elsewhere, £170 million will fund non-court legal resolutions, with a focus on cases in family law that “should never go to court”, and £165 million will be invested in reducing the costs of children’s social care placements.

A further £105 million will be invested over the next four years in 15 new special free schools creating additional places and increased choice for parents.

– How close was the Budget to breaking the Government’s fiscal rules?

The OBR said that the Government will meet its self-imposed target of debt falling by a percentage of national income in five years’ time.

Budget 2024 debt as % of GDP
(PA Graphics)

However, it will be met with headroom of £8.9 billion, a “historically modest” margin.

This is far lower than the average £26.1 billion in headroom that chancellors have had against their own fiscal rules since 2010.

– What does the Budget mean for the general election?

With the Budget being the last scheduled major fiscal event before the general election and the Conservatives’ continued poor performance in the polls, the Chancellor was under immense pressure from within his own party to make a difference.

But economic circumstances dictated that Mr Hunt could not satisfy the cravings of many of his colleagues for a cut to income tax, which they believe would send a clearer and more favourable message to the electorate.

Therefore many may be sceptical that the measures announced on Wednesday will be the electoral game-changer the Chancellor and his Cabinet colleagues were hoping for.

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The economy is set to be the dominant issue in the general election campaign (Ben Birchall/PA)

However, with promises of further tax cuts to come and a concerted push for further efficiencies in public services, Tory MPs and activists may feel more comfortable in arguing that the party is now asserting its traditional identity after tax rises and high spending.

The problem for the Government is that a cut to national insurance, while welcome, will not alleviate the cost-of-living pressures that many households are still struggling with.

Prices are still high, even if inflation is coming down, and other costs such as council tax are set to rise significantly.

Labour will look to emphasise this ongoing anxiety during an election campaign which, as ever, will be dominated by the state of the economy and decisions by voters on which party they trust to improve their lives.