Budget 2023: A good start, but not quite enough

By March 21, 2023March 22nd, 2023Member's perspectives

Last week’s budget is a key step towards a long-term sustainable economic future in the UK, but fails to consider deeper issues within the UK economy, namely issues with productivity and the challenges faced by young people across the country. In November, I discussed the need for patience in the pragmatic approach taken by the then-new Chancellor, given the inherited situation, and I can safely say now that the seeds of recovery have been sown, the Conservatives are getting ready for the next election.

Since November, the government has committed itself to five key aims, and this budget includes concrete steps to achieve three of them, namely halving inflation, sustainable economic growth and reducing government debt. The OBR now predicts the UK will avoid recession this year, inflation will fall to 2.9% by the end of the year, and government debt (in terms of GDP) will be lower than previously thought until at least April 2028.

This is a budget designed to get people back to work. The UK currently has over 8 million people classed as economically inactive, with 27% of 50–64-year-olds currently classed as economically inactive. This is despite there being nearly a million job vacancies in the UK, a number higher than at any other point since 2001. Given one of the key causes of inflation, this year has been wage rises to attract new workers to firms, reducing the level of vacancies is key to the Chancellor achieving its inflation targets.

To this end, the government has implemented policies designed to urge parents to come back to the workplace sooner and possibly permanently. Previously, only three and four-year-olds were eligible for thirty hours of free childcare. This will now be extended to children over nine months old by September 2025, with fifteen hours a week available by September next year. Additionally, childcare support benefits will now be paid upfront when parents increase their working hours. This will incentivise new parents to re-enter the workforce earlier than before.

Alongside this, the government has created provision for disabled people to re-enter the workforce much more easily than before. This has been achieved by removing the Work Capability Assessment and separating benefit entitlements out for those with the ability to work, meaning those who can work can do so without losing their financial support, thus increasing the number of long-term disabled people in the workforce.

Furthermore, scrapping the lifetime pensions allowance will encourage people to stay in the workforce for longer as they can continue to put money into their pension until they choose to retire. Previously, many, when they reached the cap on their lifetime allowance, chose to retire, even if they could, and wanted, to continue working. This led to shortages of senior doctors, amongst other professions.

However, while these policies will increase the number of people in the workforce, these will do nothing about the long-term productivity issues within the UK economy. UK productivity growth is not predicted to grow by over 1.5% at any point in the next five years, leading to the country being left behind by rivals in Europe and the rest of the world. There is little within this budget to help increase the skills needed for the next generation of jobs, especially within young people, where technical skills needed for future airport expansion, HS2, and the building of the next generation of nuclear power plants are necessary to ensure sustainable long-term growth.

Furthermore, for young people, housing market reform, for example through a rethinking of Stamp Duty and Purchase Taxes, alongside a commit to the building of more affordable starter homes are also absent, meaning that young people cannot start to build their wealth up like their parents were able to do. This is alongside the expected fiscal drag from income tax brackets staying the same despite the inflation and wage growth that has occurred this year.

The budget does little for business as well. The government has continued to commit to the rise in corporation tax to 25% whilst reducing the tax deduction on investment to 100%, down from 130%. Whilst it can be argued that the so-called ‘super-deduction’ was excessive, given the rises in interest rates and economic uncertainty, exacerbating by last weeks’ banking crisis, business needs greater incentive to invest in the UK to close the productivity gap. This budget does not do this.

Given the better fiscal position the government has found itself in due to energy prices falling faster than expected, thus reducing the impact of the Energy Price Guarantee on finances, the government should have found a way to start cutting taxes down from these historic highs to achieve long-term economic growth. The next election will take place within the next eighteen months, and for voters in both the Red and Blue Walls to trust the party again, personal and business taxes need to start being reduced far enough in advance for them to make a difference before we all go to the polls.

Therefore, this budget is strong and helps reduce economic inactivity across the country, but it fails to solve the long-standing economic challenges, and so in the next year, the Chancellor needs to reduce barriers to business investment and young people acquiring wealth and financial security to close the gap to Labour.