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Jeremy Hunt’s First Full Budget: What to Expect



Energy Prices and Fuel Taxes

Jeremy Hunt moves into the spotlight at 12.30 p.m. on Wednesday, with his first full Budget. City experts braced for a range of action, from further support for energy bills to protection for London as a global trading centre. The Chancellor has already announced that the Energy Price Guarantee, which caps the average UK household bill for gas and electricity at £2,500 will be extended at that level until June, instead of going up to £3,000 from April 1 as previously planned. A fall in the wholesale energy prices left the government with room to do so. Tax on fuel is expected to be frozen, for both the duty applied to it and VAT.

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Helping People Back to Work

Measures to help people back into work are likely to include moves to help with childcare costs, which in London are already among some of the highest in the world. Childcare tax credits, currently at £2,000 a year and an extension to subsidised hours are possibilities here. Increased allowances for pensions contributions are expected to remove an incentive for experienced workers to retire early and to encourage others to re-enter the workforce, in moves most associated with efforts to bring doctors back into the health service. The lifetime cap on pension contributions is set to go up from just over £1 million, with reports saying it could reach £1.8 million.

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The City’s Status and Attracting Investors

Worries about the City’s ability to attract and retain the share listings of world-class firms have followed the multi-billion dollar loss of the world’s biggest building products company CRH to New York. Arm, the Cambridge-based chip designer will also have a trans-Atlantic home for its shares when spun back out of its current Japanese parent, Softbank. This week’s government-brokered rescue of the UK arm of Silicon Valley Bank went some way to burnishing regulators’ credentials. But City figures will be on the lookout for measures designed to encourage UK pension funds and other institutional investors to put money into the stock market, after a decline in their use of it has cut the amount of capital available in London.

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Corporation Tax and the Economy

Wider measures to encourage firms to invest in the UK are another hot topic, with a rise in corporation tax bearing the brunt of criticism. It was designed to fill funding gaps caused by Hunt’s immediate predecessor, Kwasi Kwarteng, last September in the un-costed “mini”-Budget that knocked the confidence of international financial markets in the UK. The UK’s better-than-feared performance since then has raised hopes for corporate tax cuts this week. Michael Hewson, chief market commentator at CMC Markets, said: “When the UK economy needs all the help it can get it beggars belief that a UK Chancellor seems to think raising taxes on highly stretched businesses is a good idea. “We’ve already seen and heard from several companies taking the decision to postpone or cancel investment programs in the wake of the prospect of higher tax and regulatory burdens, while other companies are looking at moving away from the UK completely. It’s an absolute fallacy that higher tax rates mean higher tax revenue.” The Chancellor could still announce a reduction in forecast borrowing of £14 billion to £126 billion in 2023/24.

Independent Economic Forecasts

Dire predictions of a recession outlasting 2023 have started late last year have proved false. A more resilient showing late last year lasted into January, with growth last month following a steady showing in the fourth quarter of 2022. Nonetheless, the economy is some way off healthy rates of growth and attention will focus on the latest official, independent forecasts for what may lie ahead from the Office of Budget Responsibility. Economists at HSBC said: “The OBR will present Jeremy Hunt with a little more headroom in the near term, and a little less in the medium term … On our calculations, the Chancellor could still announce a reduction in forecast borrowing of £14 billion to £126 billion in 2023/24. That should help avoid an outbreak of turmoil in the bond markets, where the government goes to borrow, and which were sent spinning into chaos by Hunt’s predecessor.”



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