The Chancellor Jeremy Hunt has outlined his plans for the UK budget amid a rising cost of living crisis and imminent recession.
Latest inflation figures show prices have risen 11.1 per cent in the year to October 2022 (predominantly driven by energy prices). Consumer and business spending has declined, and the Bank of England has warned of “imminent recession” for the UK.
This budget announcement is historical since the Government could either ease the “black hole” of £55bn which needs to be funded through taxation and spending or deepen the recession with policy decisions.
Here, Amy House, Director of Green Economy, provides her view on today's announcement.
“The Chancellor is right to say that now is not the time to pull back from our net zero commitments, and it is encouraging to see a commitment to the acceleration of renewable energy.
Efficiency savings is once again the missing element here, reducing consumption at source within our businesses, across our transport networks and in our buildings presents a real opportunity to build energy security.
We cannot rely on our businesses’ altruism alone during a cost of living crisis, policy is needed to drive change that will deliver our net zero ambitions.”
Hunt has focussed on three priorities for growth: energy security, infrastructure, and a goal to “turn Britain into the Next Sillicon Valley.” In terms of energy security, the UK government is determined to “stop ourselves being at the mercy of international gas prices” and seek to counter this with a combination of energy independence and energy efficiency.
Hunt has pledged to accelerate offshore wind, a sector in which the UK are global leaders, and boost carbon capture, onshore wind, and nuclear energy. Most notable, the government will go ahead with plans to build the Sizewell C nuclear plant in Suffolk. The plant is expected to provide up to 7 per cent of the UK’s electricity needs, create 10,000 jobs, and provide power to 6 million homes for 50 years. However, critics of the plant have cited the exorbitant costs associated with it, as well as highlighting that it will not be generating electricity until the 2030s assuming construction remains on schedule.
The government is also targeting energy with windfall taxes. Windfall tax on oil and gas company profits will increase from 65 per cent to 75 per cent on UK operations until March 2028. This is coupled with a windfall tax on of 35 per cent, up from 25 per cent 1 Jan 2022 until March 2028, on the energy industry.
However, renewables are not exempt from windfall taxes. There will be a 40 per cent tax on profits of older renewables and nuclear energy generation. These windfall taxes across the sector are expected to generate £14bn a year in revenue.
The Government’s net zero nod included a pledge to “remain committed” to the Glasgow climate pact which includes a 68 per cent reduction in emissions by 2030.
As from April 2025, Electric Vehicles will no longer be exempt from the Vehicle Excise Duty in a bid to make the motoring tax system “fairer.”
Hunt spoke highly of the UK’s scientific prowess and seeks to boost funding for research and development (R&D) in a bid to transform the UK into the next Silicon Valley. Public funding for R&D is set to increase to £20bn by 2024/5. The government will focus on turning the UK’s innovation and scientific ingenuity into viable and competitive global businesses.
A key point in the budget announcement surrounded skills and education, with Hunt stating that investment in education is investment in growth. Between 2024 and 2025, the government will invest an extra £2.2bn in schools with the goal of upskilling and improve the quality of education across the country.
Hunt will ask over 600,000 more people claiming Universal Credit (UC) to meet with their work coach more frequently to increase working hours and income. Benefits will also rise in line with September’s inflation of 10.1 per cent. In addition, the national living wage for over 23s will now rise from £9.50/hour to £10.42/hour.
Pensions will rise in line with September’s 10.1 per cent inflation, and Hunt has committed to a “triple lock” meaning pensions will continue to rise in line with the highest inflation figures.
A key talking point at COP27 has been how much developed countries must financially compensate developing nations to both tackle climate change and recover from the negative impacts of it. Hunt today announced that it will not be possible for the UK to maintain the 0.7 per cent of GDP overseas spending target amid growing economic turmoil. Overseas spending will instead sit at roughly 0.5 per cent of GDP.
The NHS will see its budget increased each year over the next two years by £3.3bn. Hunt has recognised the need to protect and support the NHS, and NHS chief executive Amanda Pritchard has agreed that this budget increase will provide sufficient funding for the NHS to fulfil key priorities.
Finally, those living in state housing will see their rents capped at a 7 per cent increase in the next financial year, protecting the most vulnerable from rent rises.
