Page 2 - Budget Newsletter - March 2023

THE BUDGET BACKGROUND

It may not have seemed like it, but the Budget on 15 March was the first in almost seventeen months.
The last formal Budget was on 27 October 2021, three Prime Ministers and four Chancellors ago. In
2022 there were plenty of statements from the various Chancellors, but none was given the
imprimatur of Budget, even though the media branded several as ‘mini-Budgets’.

The reality is that the last two such announcements contained spending and tax changes bigger
than most genuine Budgets. Kwasi Kwarteng’s ‘Growth Plan’ announcement in September 2022 had
a bottom line of £45bn extra borrowing by 2026/27 to fund a range of tax cuts. Less than two dizzying
months later, Jeremy Hunt’s Autumn Statement delivered £55bn of tax increases by 2027/28, having
reversed much of Mr Kwarteng’s proposals.

November 2022’s Autumn Statement set out a raft of measures that would normally have arrived in
a Budget, such as the reduced additional rate tax threshold and deep cuts to the dividend allowance
and capital gains tax (CGT) annual exemption. Although the Chancellor did not say as much, the
sequence of events has been more like an Autumn Budget followed by a Spring Statement.

Mr Hunt’s November and March outings have both been accompanied by a weighty Economic and
Fiscal Outlook (EFO), issued by the Office for Budget Responsibility (OBR). As the short-lived, OBR-
eschewing, Truss Government demonstrated, EFOs matter to the markets. The latest edition follows
the changes in the UK’s economic performance and expectations over winter. The picture remains
a difficult one:

• Last November, the OBR forecast the UK economy would contract by 1.4% in 2023. In line
with other forecasters, including the Bank of England, the OBR has become less
pessimistic and is now projecting a much more modest decline of 0.2% for 2023 with
growth returning in 2024, up from the 1.3% projected in November to 1.8% in the latest
EFO. However, thereafter, growth is less than previously projected.

• At the time of the Autumn Statement, the CPI inflation reading was 11.1% (for October
2022). That now appears to have been the peak, with the January 2023 annual inflation
figure at 10.1% (February’s figures will appear on 22 March). In November, the OBR
projected 2023 inflation to average 7.4%. It now has reduced the figure to 6.1% and end
the year at 2.9%. That reflects a view that inflation will drop sharply in the second half, as
the sharp energy price increases of 2022 drop out of comparison in the year-on-year data.
The Bank of England has a similar perspective, pencilling in a 4% year end reading.

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