Budget 2023: Game Changer for Mothers and a Boost for Labour Supply

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It's all about the Budget in the UK and Jeremy Hunt, the Chancellor is focusing on how to prod the stalling economy into life, without making tax cut and spend promises which could set off a fresh debt furore.

With a keen eye on trying to maintain financial stability, particularly the close shave this week given SVB’s collapse, he looks set to focus on highly targeted policies, rather than tax cuts to propel growth.

He has more wiggle room as public sector borrowing, still high by historical standards is set to undershoot forecasts made by the Office of Budget Responsibility.

Labour shortages mean high inflation is stubborn and he’ll be trying to coax people back to work with a combination of sweets and a naughty step approach, with a widening of sanctions expected for those who don’t look for work.

He is set to pull a big cuddly rabbit out of the hat for parents struggling with childcare costs, with speculation high that parents of under-twos in England could be offered 30 free hours of childcare a week.

This could be a game changer for mothers, who are more likely to leave the workforce or dramatically cut hours because the cost of childcare is so painful, given prices are among the highest in the world.

But the stuffing could come out of the rabbit and the policy could unravel if nurseries struggling to attract staff are unable to provide the place with the funding being offered.

So, the detail of the policy, if its announced, will be crucial.

Above image is courtesy of Lloyds Bank.

The Chancellor is understood to be looking at increasing the lifetime pension allowance to try to encourage more people to work for longer and allowing workers to put more money into their pension pot before being taxed.

As widely expected, the Energy Price Guarantee is going to stay at £2500, instead of rising to £3,000 in April.

This will be a huge relief for the millions of people who are already struggling to pay their bills and were facing the threat of more price rises.

The freezing of the guarantee was always going to be more likely when the falling wholesale cost of energy meant it was set to cost £5 billion less than forecast.

But the loss of the monthly discount from April will still be felt and already almost half of people are finding it difficult to pay their energy bills.

However, if energy cost continue to fall as they have been, people should start feeling the benefit by around July.

Hunt is also expected to conjure up tax incentives for businesses who invest in Britain, to offset some of the effects of the corporation tax increase which is going up from 19% to 25%.

The defence sector could also get a boost as the Treasury has been under pressure for months to increase military budgets.

He's expected to announce an extra £5 billion over two years and there will be a keen eye trained on the trajectory after that.

The latest skirmishes in the skies between a US drone and a Russian aircraft has unsettled markets, and there is an expectation that NAO member countries will need to keep upping spending to deal with future threats.

Market Report by Susannah Streeter, Head of Money and Markets at Hargreaves Lansdown.