Budget 2023 live: Jeremy Hunt announces reforms to childcare, pensions and disability benefits

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A thinktank has described the changes to the pension tax allowance rules as a “massive inheritance tax loophole”. This is from James Browne, head of work, income and inequality analysis at the Tony Blair Institute.

And this is from Jeevun Sandher, head of economics at the New Economics Foundation, another thinktank.

Increasing the pension lifetime allowance is a massive giveaway to already very wealthy people. If the chancellor hopes this will help older people remain in work, it’s completely divorced from reality. Only around 1% of workers saved more than the old annual allowance and just 10% were hit by the lifetime limit of ?1.1 million.

Increasing the annual and lifetime allowances won’t do much to help the vast majority of us save for retirement.

One group that are supposed to benefit from these tax changes are the GPs and NHS consultants who were forced to retire early due to pension limits. But this group is far more affected by the annual than the lifetime allowance, which is still far below its 2010 level.

Nick Macpherson, a former permanent secretary at the Treasury, has also criticised the proposal.

But the move has been welcomed by the wealth management industry. This is from Lee Clark, a financial planner at RBC Brewin Dolphin, an investment management company.

Effective retirement planning is a long-term game that requires long-term consistent pension policy from concurrent governments to reward hard working savers. Pension savers need certainty, not this see-sawing of policy. For example, would a future government reverse this move?

That said, the abolishing of the LTA [lifetime tax allowance] is fantastic news for many professionals that have had a disincentive to work and save because of the frozen lifetime pension’s allowance of ?1.07m that had halved in real terms since 2012.

Inflation isn’t actually expected to return to the Bank of England’s 2% target until 2028.

As Jeremy Hunt explained in his budget statement, the OBR expects the annual inflation rate will fall sharply to 2.9% by the end of 2023, a more rapid decline than expected in November.

That fall will be partly driven by falling household energy bills. But, “stronger domestically generated” price pressures means inflation is expected to oscillate around zero in the middle of the decade. Back in November, the OBR had forecast inflation would turn negative.

The OBR adds:

Inflation returns to target in early 2028, with the offsetting effects of lower gas prices and increased domestically generated inflation leaving the consumer price level at the end of our forecast little changed from November.

Labour says changing the pension tax relief rules, which it describes as “the only permanent tax cut in the budget”, will cost the taxpayer ?70,000 for every person who returns to the labour market (the rationale for the move).

This figure is based on the policy costing more than ?1bn towards the end of the decade (see 2.59pm), and the OBR saying in its report that it expects the policy to result in an extra 15,000 people staying in work. The OBR says:

Changes to the lifetime allowance and annual allowance on pension contributions increase employment by around 15,000 by removing some financial disincentives to continuing in employment for those with large pension pots.

Here are the figures from the Treasury’s red book showing how much the two changes to pension tax allowances will cost the government. The lifetime allowance on how much people can save in their pension funds tax free will be abolished, and the annual allowance (the amount that can be put in the fund tax free) will go up from ?40,000 to ?60,000.

There is no cost in 2022-23 (the column on the left). But by 2026-27 and 2027-28 (the two final columns on the right) it is costing more than ?1bn a year.

The UK’s tax burden is on track to hit its highest level since the second world war.

The OBR forecasts that taxes, as a share of GDP, will hit 37.7% in 2027-28 – news that will not please the tax-cutting wing of the Conservative party.

That would be 4.7 percentage points above where it stood before the pandemic, which drove up government spending and borrowing.

But the OBR does point out that the UK’s tax burden is lower than the average of other advanced economies.

The corporation tax burden will be the highest since the tax was introduced in 1965 by the Labour chancellor Jim Callaghan, the OBR says, as the rate is increasing from 19% to 25% despite opposition from the Tory back benches.

The ratio of public spending to GDP is expected to settle at 43.4%, its highest sustained level since the 1970s

The OBR has raised its forecast for how far UK house prices will fall from their peak.

The fiscal watchdog now predicts a 10% drop in prices, compared with their high in the fourth quarter of 2022. That’s one percentage point more than the 9% drop forecast in November, when the mortgage market had been rocked by the shambolic mini-budget.

Property transactions are expected to drop by 20% relative to their Q4 2022 peak.

The OBR points out that the correction has begun:

Leading indicators from Halifax and Nationwide suggest that house prices have already fallen by 3-6% between their peak in the middle of 2022 and February 2023.

Low consumer confidence, the squeeze on real incomes, and the expectation of mortgage rate rises to come are expected to contribute to continued falls in house prices and a reduction in housing market activity.

According to the Office for Budget Responsibility, household disposable income is set to fall by almost 6% in the two years between 2022 and 2024. The OBR says this is an improvement on what it was expecting last autumn, it is still the steepest fall since records began more than 60 years ago. The OBR says:

Real household disposable income (RHDI) per person – a measure of real living standards – is expected to fall by a cumulative 5.7% over the two financial years 2022-23 and 2023-24. While this is 1.4 percentage points less than forecast in November, it would still be the largest two-year fall since records began in 1956-57. The fall in RHDI per person mainly reflects the rise in the price of energy and other tradeable goods of which the UK is a net importer, resulting in inflation being above nominal wage growth. This means that real living standards are still 0.4% lower than their pre-pandemic levels in 2027-28.

The sharp rise in interest rates over the last year means the cost of servicing the UK’s national debt has also surged.

Interest rate have tripled over the past year across advanced economies.

The OBR forecasts that the share of revenues consumed by UK debt servicing will rise from 3.1% in 2020-21 to 6.2% in 2021-22, and hit 7.8% by 2027-28.

That is because much UK government debt is index-linked, meaning that the interest payments received by bond-holders goes up and down in line with inflation (which hit 40-year highs, over 10%, last year).

Here are three takes on the budget from Paul Johnson, director of the Institute for Fiscal Studies.

And, of course, the most interesting material is often in the Office for Budget Responsibility‘s report, its economic and fiscal outlook. That’s here.

The UK is on track to hit the government’s target to have debt falling as a share of the economy by “the narrowest of margins in five years’ time”, the Office for Budget Responsibility said.

The OBR’s economic and fiscal outlook shows that the chancellor only has ?6.5bn of headroom to achieve the target to have debt falling, as a share of GDP, in the 2027-28 financial year.

That is the smallest amount of headroom any chancellor has set aside against his primary fiscal target since the OBR was established in 2010 by George Osborne.

And that calculation assumes that the government raises fuel duty rates in future years (having frozen fuel duty at its current rate for another year today).

The OBR says:

Underlying debt – which excludes the Bank of England and is the measure targeted by the chancellor – does not peak until 2026-27 (a year later than we forecast in November) at 94.8 per cent of GDP and then falls only marginally (by 0.2 per cent of GDP) in the final year of the forecast.

That suggests Hunt may not have much more firepower for pre-election giveaways at future budgets, as he has spent around two-thirds of the improvement in today’s forecasts.

The Treasury has now published all the budget documents on its website here. The most important one is the red book, but the policy costings and distributional impact analysis is on the website, too.

And here is the Treasury’s news release with its summary of the measures.

Starmer ends his response by saying this is just sticking plaster politics. After 13 years of no growth, people are entitled to ask if they are better off than they were before. The answer is no, he says.

Starmer says the government was right to look at a solution to the pensions problem that means some well-paid doctors are retiring early.

But he says the pensions tax allowance announcement is “a huge giveaway” to some of the wealthiest people in the country. He goes on:

The only permanent tax cut in the budget is for the richest 1% How could that possibly be a priority?

Starmer accuses Hunt of lifting ideas from Labour.

He says of course Labour welcomes more spending on childcare.

As Tory MPs jeer, he tells them they were not listening when Hunt explained how long it would take to implement.