Wednesday briefing: The chancellor has an unexpected windfall – how will he use it in today’s budget?
Chancellor #Chancellor
Good morning. When chancellor Jeremy Hunt gave his autumn statement last year, he was attempting life support on a British economy spiralling into crisis because of the disaster of Liz Truss and Kwasi Kwarteng’s policy agenda. When he delivers his budget in the House of Commons today, he will present a more optimistic picture – with caveats: that he will push for growth after stabilising the public finances, but has to be restrained if he is to finish the job.
Hunt has enjoyed much lower than expected energy prices, and greater confidence in the UK’s ability to pay its debts that has reduced the cost of financing them. Last night, the Guardian exclusively reported that among the big beneficiaries of that situation are parents of one- and two-year-olds, who will get an extra 30 hours of free childcare a week.
But critics argue that the work of restoring the government’s reputation for reliability was so basic that he deserves little credit – and that much of the benefit he has accrued is due to global factors beyond his control. And, they say, after years of Conservative cuts, what has been billed as the “back-to-work” budget amounts to tinkering at the edges of a far more fundamental set of problems.
So is Hunt a model of prudence – or hamstrung by his caution? Ahead of his appearance at 12.30pm, today’s newsletter, with the Guardian’s economics correspondent Richard Partington, runs you through what you need to know to make sense of it. Here are the headlines.
Five big stories
Ukraine | A Russian fighter has collided with a US Reaper drone, forcing it down into the Black Sea, in what US forces called an “unsafe and unprofessional” intercept. After the incident – the first such collision since the invasion of Ukraine – Russia said it was not seeking confrontation with the US. Read Jonathan Yerushalmy’s explainer on the drone and Julian Borger’s analysis.
BBC | Leaked messages seen by the Guardian show that BBC editors asked their journalists to avoid using the word “lockdown” at the start of the pandemic and to be more critical of Labour after pressure from Downing Street. One insider said headlines online had been determined by No 10 “on a very regular basis”.
Asylum | A judge has ruled that a group of asylum seekers threatened with removal to Rwanda can bring a legal challenge against the Home Office to appeal against the controversial policy. The ten people bringing the challenge claim there has been a failure to consider risks of deportation.
UK news | A 22-year-old woman has been jailed for eight and a half years after she was found guilty of lying about being raped and trafficked by an Asian grooming gang. Eleanor Williams also made a series of false rape claims against other men.
Trump | Donald Trump has said that Queen Elizabeth II, Diana, Princess of Wales, Richard Nixon, Oprah Winfrey and Hillary Clinton all “kissed my ass” in letters they wrote to him. He made the comment as he promotes a forthcoming book of his correspondence.
In depth: Is this the ‘back-to-work’ budget?Rishi Sunak, left, and Jeremy Hunt. Photograph: Simon Dawson/No10 Downing Street
If you were expecting fireworks from Jeremy Hunt in the House of Commons today, first of all, have you ever seen this guy? Second of all, that is not the story he’s trying to tell. “This will be about tweaks, rather than fundamental changes,” Richard Partington said. “It’s not about a step change in support for public services – it’s being billed as a ‘back to work’ budget.”
As you follow the story today, mathematician Oliver Johnson’s guide to making sense of the scale of the numbers under discussion might be useful – and take a look at Richard’s guide to the backdrop in five charts. In the meantime, here’s a guide to what we already know.
The starting point: better than expected
Since the final days of the Liz Truss administration, Philip Inman wrote last week, “the public finances have improved dramatically … the cost of financing Britain’s debt has fallen in recent months and the cost of gas on wholesale markets has tumbled”. Borrowing will be about £30bn lower for 2022/23 than expected, and gas futures prices have fallen by about 80% since August, the Resolution Foundation says, making it much cheaper to support the government’s energy price guarantee than expected.
Hunt will claim credit for restoring stability. “The economy has been a bit more resilient than expected,” Richard said. “But in a sense all he needed to do was reverse everything Kwasi Kwarteng had announced.” While everyone’s clear that was necessary, it wasn’t rocket science. Meanwhile, the change in gas prices is outside the British government’s control.
Whatever credit is due, all of that could mean more than expected to spend over the next five years (economists have varying views of how much, from £15bn to £97.5bn) without breaching the government’s targets. The big question is how Hunt will use it.
Hunt’s plan: Caution overall, but a boost for childcare
Liz Truss and Kwasi Kwarteng during a visit to a construction site for a medical innovation campus in Birmingham. Photograph: Stefan Rousseau/PA
“It seems certain he will extend support for households through the energy price guarantee,” Richard said. “That’s currently capping average household bills at £2,500 a month until April – it sounds like that will be kept for another three months,” by which point bills should be falling below the cap on their own. That would cost a one-off £3bn.
Beyond that essential help for households, “the government is concerned about the lack of workers and a large rise in economic inactivity – people not in work, but not looking either. The chancellor’s main aim for this budget is to encourage people outside of the jobs market to get back in.”
The main drivers of the change have been increases in long-term sickness, early retirement, and in the number of people with caring responsibilities. Measures to combat those problems include more help with childcare for parents and raising the level of caps on tax-free pension savings and pension contributions, which is meant to end a situation where some middle-class professionals face higher tax charges if they keep working.
“The impact of those measures will be felt pretty quickly,” Richard said. “They seem like they go in the right direction. But he could go much further.”
The rabbit out of the proverbial hat is expected to be £4bn more for childcare. Parents of one- and two-year-olds will get 30 extra free hours a week for parents of one- and two-year-olds, and the subsidy for providers will increase to cover the cost. “One of the big asks from the Confederation of British Industry (CBI) was for the government to expand free childcare,” Richard said. Hunt had previously played down the prospect of such a move.
The government has also suggested that there could be an increase in employment support for those with long-term health issues – but a reduction in benefits for those who do not participate. Tony Wilson, the director of the Institute for Employment Studies thinktank, says that is “being described as a ‘nudge’ but it’s more of a shove, and would be destined to fail”.
With a typical worker’s income projected to fall by 2% (£700) in 2022-23 and 4% (£1,100) in 2023-24, another key question is whether Hunt will lay the groundwork for more generous pay settlements for public sector workers, who are most severely affected. It would cost £5bn to offer 5.5% rises, against the 3.5% which the government has said is affordable.
But the government views this as an inflationary risk – a claim heavily contested by the Institute for Fiscal Studies, which says that it is too small a sum against the overall size of the economy to have much impact. “When you consider that he is probably going to freeze fuel duty, which would cost about £6bn, it does sound pretty solvable,” Richard said. “But there’s a lot more handwringing about affordability on pay.”
Finally, Hunt is likely to have to reflect on the alarming consequences of the collapse of Silicon Valley Bank – with markets now somewhat calmer there is still a real sense that a 2008-style banking crisis was only narrowly averted. “My view is that he might use the situation to lean into his instinct to show caution,” said Richard. “It helps his narrative – he could make the case that it shows why it would be imprudent to increase public spending further.”
The criticisms: too little, too late
The Guardian’s economics editor Larry Elliott argued yesterday that “labour supply is likely to increase regardless of the budget because the jobs market is on the turn,” making Hunt’s measures on that front less than optimally efficient.
Meanwhile, said Richard, “the Labour party will argue that the changes to get people back to work are very marginal. They’ll say that the reason so many people are out of the workforce with ill health is 13 years of underfunding of public services, and you can’t fix that without much more fundamental changes.”
At the same time, those on Hunt’s right (some of whom may still be mourning Kwarteng and Truss) will argue that “he needs to cut taxes to get the economy growing – with thresholds being frozen for three years, many people are going to be dragged into paying higher rates. They’re very unhappy about that.” The Daily Telegraph quotes Simon Clarke, an ally of Truss, who claims that going ahead with a planned corporation tax rise is “a tax on jobs and growth”.
The broad critique of Hunt’s approach: he appears to be keeping his powder dry for crowd-pleasing giveaways nearer to a general election, when it might do more good for the Conservatives’ prospects, but less for the state of the economy or people already living in precarious circumstances.
“He is saving the bigger decisions until the autumn,” said Richard. “But households are struggling with the cost of living now, and if you take the politics out of it, the sooner you act the better. The danger for Hunt is that by taking a cautious approach, he’s missing the window to instil confidence in business and get the economy growing.”
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What else we’ve been readingPhyllida Barlow. Photograph: David Levene/The Guardian
In this week’s TechScape newsletter, Alex Hern helpfully unpacks what’s been going on with Silicon Valley Bank, a relatively small, specialist bank in America that has left American bankers reeling. You can sign up to get TechScape in your inbox each week by clicking here. Nimo
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I couldn’t stop reading this New Yorker story (£) about a novelist whose life was almost entirely made up. H. G. Carrillo spent two decades weaving an elaborate tale about his heritage, his qualifications and his life story to anyone who would listen – including his own husband. Nimo
You may have previously heard of the surreal saga of Pablo Escobar’s imported hippos, which have multiplied in Colombia since they escaped after the drug lord’s death in 1993. The regional government has a new strategy to ship them abroad – but the local hippo tourism industry isn’t happy about it. Luke Taylor’s report is extremely worth your time. Archie
As Mother’s Day approaches, Junot Díaz, Kerry Hudson and Lemn Sissay write movingly about the women who have become mother-figures in their lives, fulfilling a crucial role. “I always wanted a mother like the mums from TV adverts. The kind where you say, in adulthood: ‘My mum’s my best friend.’ I didn’t get that,” writes Hudson, “but, in Levia, I was given the best aspects of that sort of relationship: encouragement, love, unconditional championing and genuine pride.” Nimo
Sport Photograph: Visionhaus/Getty Images
Champions League | Erling Haaland catapulted Manchester City into the Champions League quarter-final, with a stunning five goals against RB Leipzig, leading to a final score of 7-0. Barney Ronay wrote that Haaland is “a footballer who expresses power, edge and certainty more clearly than any other”. Meanwhile, Internazionale also reached the quarter-finals, for the first time since 2011, after a goalless draw against Porto secured their progression.
Cricket | Bangladesh celebrated another win against reigning world champions England, by 16 runs in Mirpur. England’s sloppy performance led them to their first T20 series whitewash in eight years.
Football | The 2026 World Cup will feature 104 matches across the United States, Canada and Mexico, including a new last-32 stage, after Fifa scrapped its controversial plans for three-team groups. It will be the first championship to feature 48 teams, meaning that the games will span 38 or 39 days compared with 32 in 2018.
The front pages Photograph: Guardian
The budget dominates the front pages on Wednesday, with the Guardian revealing: “Hunt’s £4bn childcare bid to get parents back to work”. The i reports, “Free childcare boost in Budget with 30 hours a week extra for toddlers”. The Times says it’s “More free childcare to get parents back in jobs,” while the Mail characterises it as “Free pre-school childcare in back to work budget”.
The Financial Times says there will be a focus on investment and labour shortages with the headline: “Hunt to unveil ‘Budget for growth’ with billions pledged for business”. Under the banner “Crying out for help”, the Mirror implores Jeremy Hunt to be “fair to those who need it”. Finally the Telegraph says “Hunt faces revolt over tax rise in Budget”.
Today in Focus Photograph: Getty Images
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Cartoon of the day | Martin Rowson Illustration: Martin Rowson/The GuardianThe Upside
A bit of good news to remind you that the world’s not all bad
A boy swimming underwater with goggles. Photograph: Alamy
England has lost almost 400 swimming pools since 2010, and the problem has only become worse with soaring energy prices and costs rising by 150% last year in some cases. The situation looked dire, but there is a glimmer of hope with new technology to heat the water.
Trialling the idea, Mark Bjornsgaard, the chief executive of the tech startup Deep Green, put a small computer data processing centre underneath a pool in Devon and the energy from it heated the water. Up to 20 pools could be upgraded this year alone. Not only does this mean that leisure centres are spending less money, it also reduces the amount of carbon they use. While this may seem like a small dent, it is an important step to ensure that the parts of the country with the greatest health needs are able to access spaces where they can exercise.
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