Spring Statement 2023 Headlines and implications

When Chancellor Jeremy Hunt delivered his Spring Statement yesterday, he spoke about a “budget for growth” and of “breaking down barriers” to reignite the economy.

Confirming that the UK would avoid a technical recession (which is defined as two consecutive quarters of negative growth in real GDP), he outlined a range of measures to tackle the cost-of-living crisis, including reforms to energy bills and changes to childcare and benefits.

This briefing note explores the Spring Statement headlines and the impacts they may have on Torus, our customers and communities.

Economic context

Jeremy Hunt arrived in the House of Commons on Wednesday facing mounting economic pressures – high inflation, soaring interest rates, a nervous global banking system and rising numbers of households unable to manage with the cost of their household bills.

The Chancellor had included a raft of tax announcements in his Autumn Statement (17 November 2022), which focused on making ‘difficult’ decisions to reduce inflation. This spring, Britain’s tax burden continues to be at its highest level for 70 years and, according to the Office for Budget Responsibility (OBR),

1. The economy will contract by 0.4% in spring 2023 and stay at that level into summer until growth returns in the second half of the year and reaches 1.8% in 2024 and 2.5% in 2025.
2. Inflation will drop from 10.7% (at the end of 2022) to 2.9% at the end of 2023. Longer term, inflation is expected to fall to 0.9% in 2024 and remain at 0% until the middle of 2026.

So, whilst the fears of a long-lasting recession coupled with stubbornly high inflation might have eased, the Chancellor stressed that the UK must remain vigilant for economic stability.

The Headlines

Energy bills

• Government subsidies capping annual energy bills to £2,500 will continue for three months (until the end of June), rather than ending as planned in April. This is expected to save the average family £160 on top of the support measures that had previously been announced.
• People on prepayment meters will benefit from a £200m investment to bring their bills in line with direct debit payers. This is expected to affect 4 million households.
• At a wider level, £20bn will be invested in low carbon energy projects over the next 20 years, particularly carbon capture and storage, and nuclear energy will be classified as environmentally sustainable for investment purposes to encourage investment.
• No new announcements were made on home energy efficiency, but the Government is expected to announce further net zero measures later this month, potentially including allocations from the second wave of the Social Housing Decarbonisation Fund.

Work and labour shortages

• Childcare support – 30 hours of free childcare for working parents in England will now cover one and two-year-olds from April 2024. Families on Universal Credit will get their childcare support up front (rather than in arrears) and the £646 per month per child cap will be increased to £951.
• Requirements for people on UC to look for work will include higher sanctions for those who turn down a job. Meanwhile, a new testing regime will be implemented for those in need of health-related benefits and a greater expectation – and increased support – for lead child carers on UC.
• £63m will be spent on programmes to bring people over 50 back to work and for skills boot camps. Meanwhile, immigration rules will be relaxed for critical construction sector roles to ease current labour shortages.
• A new programme called ‘Universal Support’ will be rolled out to support people with disabilities to find work if they want to. Each person on the scheme would receive up to £4,000 to find work and finance necessary support measures, with up to 50,000 places made available each year.

Tax and pensions

• Fuel duty has been frozen – the 5p cut to fuel duty on petrol and diesel was due to end in April 2023 but will now remain for another year.
• Tax-free pension pot allowance will rise from £40,000 per year to £60,000 following a nine-year freeze. Meanwhile, the cap on the amount people can accumulate in pension savings over their lives will be abolished.
• Alcohol taxes will rise in line with inflation.
• Although no other changes were announced affecting personal taxes, the changes announced in the Autumn Statement will soon come into effect.

Growth, investment and business

• 12 new ‘low-tax’ Investment Zones will be created across the UK, with each receiving £80m over the next five years, as part of the Chancellor’s levelling up plans to “supercharge” the North and Midlands. Liverpool City and Greater Manchester both feature on this list.
• £750m will be invested in local regeneration projects, including £161m for projects in Mayoral Combined Authorities and £400m for Levelling Up Partnerships (note: all of these are outside Torus geographies, although many are in the North West).
• Corporation tax will rise from 19% to 25%, but companies that invest in new machinery and technology will be able to deduct their investment cost from their taxable profits through an ‘investment allowance’. According to the OBR, this tax offset will boost business investment by 3% per year.

Other measures

• Defence spending will increase by £11bn over the next five years.
• £200m will be allocated in 2023 to help local councils in England repair potholes.
• £10m will be invested over the next 2 to support charities helping to prevent suicide.

The response

Ahead of the Spring Statement, the housing sector had been urging Government to fund a new Decent Homes Standard and commit to speeding up large-scale investment in decarbonisation.

Instead, other than the announcement that local authorities will be able to borrow money to spend on housing at a new discounted rate from June 2023 in a bid to support the delivery of new social homes and VAT relief on green energy measures, Jeremy Hunt was almost silent on the affordable housing agenda. There was no recommitment to housing targets, no update on a replacement for Help to Buy and no funding announcement to make homes more energy efficient.

Equally, the housing sector has criticised the Spring Statement for not going far enough to address the cost-of-living crisis for lowest-income households; instead, its focus on lifting pension caps for high-earners can be seen as a Government that is out of touch with the ‘wage-price spiral’, which housing providers warn could push more people into homelessness.

National Housing Federation response

• A social energy tariff should be created for those on the lowest incomes in the longer terms. For such households, even the Energy Price Guarantee does not provide enough insulation when energy costs have doubled in the last 12 months.
• The £750m investment in regeneration funding is welcome but is not enough to tackle the scale of the challenge to improve the quality and energy efficiency of UK homes.
• The sector welcomes more detail about the proposed Investment Zones and wants to work closely with Government to ensure new affordable homes is central to creating prosperous communities.

Northern Housing Consortium response

• Local Housing Allowance (LHA) needs to be ‘uprated’ to ensure it reflects the real cost of renting in future years and does not price renters out of a decent home.
• However, the Chancellor failed to use his Spring Statement to uprate the LHA. This will hit renters hard as their rents have increased while support for housing costs has been frozen. As a result, it is likely that homelessness and demand for temporary accommodation will rise.
• The NHF is part of a coalition including Age UK and National Energy Action calling on the Government to spend at least £6bn every year to help upgrade homes, improve training and supply chains to support heat pump rollout and invest £5bn for home insulation and £3bn for heat pump installation.

RIBA response

• Whilst the emphasis on levelling up and devolved power to local communities is welcomed, much better resourced planning departments are needed to tackle the housing crisis and clear planning backlogs.
• Equally, improving energy efficiency in the home is the best way of reducing household energy bills whilst creating green jobs and improving health outcomes.
• Unfortunately, the Government did not announce anything relating to planning or retrofitting in the Spring Statement. Bolder action on both priorities is now urgently needed.

Next steps

The Strategy & Public Affairs team will continue to monitor the policy environment and will share relevant updates with you in the coming weeks and months.

If you would like to know more about any of the high-level points shown above, or how specific announcements may affect your business area, please do get in touch by emailing strategy@torus.co.uk.

Fore more information on any of the above, or for any other queries, please contact Christine.Vaudrey@torus.co.uk