The 2023 Spring Budget: How can we get the economy moving again?

March 17, 2023

crowded kings cross station due to strikes — Image © william87 | Istock

This week’s 2023 Spring Budget has been keenly eyed following the turmoil that the last attempt at a budget created – how can the government improve the economy?

Following the 2022 Autumn statement, former chancellor Kwasi Kwarteng triggered a clear rebuke from financial markets which required immediate action on the part of the Bank of England to stabilise the value of the pound as it plunged to its lowest value in many years. Clearly, radical attempts to increase debt-based finance are not well-rated by the markets, therefore, many pundits were hoping Jeremy Hunt, the present chancellor, will be providing a much more muted 2023 Spring Budget.

The present economic environment, which is partly a product of the fallout from the last budget, is not favourable to the average company or household. Inflation remains a persistent problem in the economy; however, growth is becoming a concern, and supply chains remain rather fractious.

What are some key elements needed in the 2023 Spring Budget?

Since the Covid Pandemic, there are 6.7 million people of the working population who are economically inactive. The Spring budget outlines a number of incentives to bring these people back to work. One of these initiatives is targeted towards the 2.5 million people who are on long-term sickness or disabilities. The government, through the Universal Support Scheme, will provide training and development for this group to match them to suitable vacancies. This scheme is a significant change to the UK welfare system and it is important to take into account the structural barriers to employment that long-term sick and disabled people face and that they are not unduly penalised for this.

Also, by lifting the annual limit on tax-free pension contributions from £40,000 to £60,000 and by abolishing the lifetime cap on pensions, the government is incentivising experienced and senior workers to continue to contribute to economic growth and prosperity. The drive to get well-paid senior workers back into work can be construed as a tax break for the rich and will not benefit the young low-paid workers on minimum wage.

The 2023 Spring Budget also tackles the issue of prohibitive childcare costs and has announced a proposal to provide 30 hours of free childcare to children aged nine months to three years. This is a significant reform to childcare provision in the UK and will be phased in gradually by September 2025. Although childcare reform is much needed, as the UK has one of the highest childcare costs in Europe, the proposed package requires a lot more resources to be successful. There need to be more nursery places available, trained staff and more resources available to schools to provided the wrap around care for children outside normal school hours.

A woman is working from her home office while attempting to home school her daughter. — Image © EllenMoran | Istock

Addressing the extension of the energy price guarantee

One key element which many expected was the extension the energy price guarantee, which caps prices at £2,500 per annum. This will extend coverage of the price guarantee to meet the next revision of the price cap which will bring prices down to reflect falling international gas prices. The extension of the Energy Price Guarantee is beneficial for both inflation and household energy bills but calls into question our dependence on fossil fuels for energy. The 2023 Spring Budget outlines longer-term measures to increase resilience against energy price hikes such as the launch of the Great British Nuclear to support new nuclear builds. It lacks, however, reasonable medium-term approaches for transitioning away from fossil fuel energy. Here an opportunity may have been missed by promoting short-term economic growth by manipulating energy markets back toward lower prices rather than seeking fiscal measures to reduce energy usage.

As of today, challenges remain, the latest Bank of England forecasts give a mixed view of how joyful the future will be. Growth will begin to cool off and shift into the negative,
eventually creating a recession which is anticipated to run until the beginning of 2025. Unemployment starting to since the last budget, and will begin to rise more quickly and remain high over at least the next four years. Forecasts are not so effective in the long term, but growth post-2025 would, in theory, see unemployment drop. Inflation, one of the key concerns at present appears to be past it’s peak and should return to the 2% target in the first quarter of 2024 if the Bank of England projections are correct.

Those striking professions will likely continue their industrial action

The future is perhaps not too optimistic for the economy, but in terms of individual households, this week’s budget makes substantial changes to pension arrangements to incentivise later retirement ages. In younger households, increased childcare funded by the government is designed to incentivise people into work and stimulate the economy. Little has been said on wages; public sector workers such as nurses, doctors and teachers may be disappointed that nothing has been put forward in the budget for them. These professions will likely continue their industrial action. There may soon prove a turning point as increased action is shown to lift union membership, making future strikes more severe and increasing the unions’ negotiating power (Recent pay rises suggest that collective bargaining may be on the way back).

Dr Michael Harrison – Royal Docks School of Business and Law
Dr Shampa Roy-Mukherjee – Royal Docks School of Business and Law
Dr Shaherah Jordan – Sustainability Research Institute

All at the University of East London