Budget 2023: High noon for chasing energy prices, city and taxes

Jeremy Hunt takes the spotlight on Wednesday at 12.30pm with his first full budget.

City experts prepared for a range of measures from further support for energy bills to protecting London as a global trading hub. Here’s a sampling of what’s expected in Westminster just after midday.

Cost of living crisis, energy bills and child care

The energy price guarantee, which caps the average UK household bill for gas and electricity at £2,500, is widely expected to be extended at this level without rising to £3,000 from April 1 as previously planned. A fall in wholesale energy prices gives the government leeway to do so.

According to Laura Suter, head of personal finance at AJ Bell, an extension is “a no-brainer” for Hunt. “It is expected to cost the Government around £3billion but… the Energy Price Guarantee has not cost the Government as much as expected and has given it some leeway,” she said.

The fuel tax is expected to be frozen for both the tax levied on it and VAT.

Measures to support reintegration into the labor market are likely to include measures to support childcare costs, which in London are already among the highest in the world. Childcare tax credits, currently at £2,000 a year, and an extension to subsidized hours are options here.

Higher pension contribution deductions are likely to discourage experienced workers from taking early retirement and encourage others to re-enter the labor market, most likely linked to efforts to bring doctors back into the health service. The lifetime pension contribution ceiling is set to rise from just over £1m and could reportedly reach £1.8m.

City of London and UK Investment Tax Relief

Concerns about the city’s ability to attract and sustain the stock listings of world-class companies followed the multi-billion dollar loss of the world’s largest building products company CRH to New York. Arm, the Cambridge-based chip designer, will also have a transatlantic home for its shares when it is spun off from its current Japanese parent Softbank.

This week’s government-brokered bailout of Silicon Valley Bank’s UK arm helped boost regulators’ credibility. However, City’s numbers will be on the lookout for measures to encourage UK pension funds and other institutional investors to put money into the stock market after a fall in their use reduced the capital available in London.

James Hughes, chief analyst at Scope Markets, said the Chancellor had “an ideal opportunity” to “stimulate more investment in the UK equity market”, adding:

“It is all well and good to focus on reforming the listing rules, but as has been revealed in recent weeks there is a waning interest in domestic equities in London-listed stocks that warrant attention.”

Broader measures to encourage investment in the UK are another hot topic, with a rise in corporate tax being the main criticism. It was designed to fill funding gaps caused by Hunt’s immediate predecessor, Kwasi Kwarteng, in last September’s uncalculated ‘mini’ budget that shook international financial markets’ confidence in the UK.

The UK’s better-than-feared performance has since fueled hopes of corporate tax cuts this week.

Michael Hewson, Chief Market Commentator at CMC Markets, said: “When the UK economy needs all the help it can get, it’s hard to believe that a UK Chancellor seems to think a tax hike for severely strained companies is a good idea.

“We have already seen and heard from several companies who have made the decision to postpone or cancel investment programs at the prospect of increased tax and regulatory burdens, while other companies are considering a complete exit from the UK. It is an absolute fallacy that higher tax rates mean higher tax revenues.”

The economy and government borrowing

Gloomy predictions of a recession lasting through 2023, which began late last year, have proved wrong. More resilient development late last year continued into January, with growth picking up in the last month after a steady run in the fourth quarter of 2022.

Nonetheless, the economy is still a long way from healthy growth rates and attention will turn to the latest official, independent forecasts from the Office for Fiscal Responsibility.

Economists at HSBC said: “The OBR will give Jeremy Hunt a little more leeway in the short-term and a little less in the medium-term… According to our calculations, the Chancellor could still announce a £14bn reduction in projected borrowing to £126bn in 2023/24.

That should help avoid an eruption of turmoil in bond markets, where the government is borrowing and which was thrown into chaos by Hunt’s predecessor.