The British government announced an expansion of free child care, extended household energy subsidies and bolstered business investment incentives on Wednesday as ministers attempt to pull the nation’s economy out of stagnation.
Amid double-digit inflation, rising interest rates and widespread labor strikes, Jeremy Hunt, the chancellor of the Exchequer, detailed his plan to help Prime Minister Rishi Sunak keep the promise he made in January to expand the economy this year.
Mr. Hunt laid out his tax and spending plans to lawmakers in Parliament in a speech aimed to coax economic growth that’s been flat over recent months — while avoiding any surprises that could shake Britain’s restored but fragile fiscal credibility.
“We remain vigilant,” Mr. Hunt said on Wednesday. “I will not hesitate to take whatever steps are necessary for economic stability.”
As he delivered the speech, junior doctors who work for the National Health Service, transit workers, some civil servants and teachers were on strike, adding to a wave of labor unrest that began last year over higher pay. The chancellor didn’t announce any further details on how the government intended to bring an end to the strikes.
Mr. Hunt was named chancellor in mid-October, during the turmoil of Liz Truss’s premiership, in a bid to calm financial markets roiled by Ms. Truss’s plans to cut taxes and raise spending. After scrapping almost all of Ms. Truss’s economic agenda, he was kept in his position by Mr. Sunak as the new government worked to restore Britain’s fiscal credibility. Both men have since focused on being seen as competent and, frankly, boring, compared with their predecessors.
The economic outlook in Britain, as in many other advanced economies, has improved in the past few months because of lower wholesale natural gas prices and some surprising resilience by consumers and businesses.
On Wednesday, the independent Office for Budget Responsibility raised its forecasts for the British economy for this year and next. It predicted that gross domestic product would fall 0.2 percent this year and the economy would avoid a technical recession, defined as two consecutive quarters of economic contraction. It’s a significant improvement since November, when the office predicted the economy would decline 1.4 percent this year.
Britain’s public finances look stronger in the short term because of higher income-tax revenue and lower expenses for energy subsidies.
But the economy is currently stagnating. And the outlook further ahead is weak, as economists lower their expectations for growth in the labor market and Brexit continues to hamper many businesses. The Office for Budget Responsibility reduced its forecasts for growth for three years beginning in 2025.
Given Mr. Hunt’s commitment to his fiscal rule of reducing Britain’s debt as a share of its gross domestic product, some economists have argued he hasn’t allowed himself room to make big changes to taxes and spending. Increases in personal income taxes are continuing and government department spending was hardly touched.
Instead, Mr. Hunt announced a slew of spending plans focused on his goal of getting “hundreds of thousands” more people into jobs, particularly targeting parents, people over 50 and recipients of state benefits. There is growing concern in the government that lower work force participation since the pandemic is holding back the British economy, as people take early retirement and are sidelined by the rising cases of long-term physical and mental health conditions.
The number of working age people counted as “economically inactive,” meaning they aren’t working or looking for work, is still about 490,000 higher than in February 2020, according to data from the Office for National Statistics published Tuesday. About two-thirds of them are over 50.
In his address, Mr. Hunt said workers would be able to save more money in their private pensions without incurring taxes, Mr. Hunt said. The change is designed to encourage people to work longer, particularly high earners, such as senior doctors in the National Health Service.
While economists, such as those at the Resolution Foundation, have said that it will be difficult to convince financially comfortable early retirees to return to work, the government could use policy to enlarge the work force by improving access to affordable child care, occupational health and other disability support.
The government has heeded the call for more child care. The plan outlined Wednesday would, over the next few years, steadily increase access to free child care for children over 9 months. Previously, the government offered 30 hours of free child care per week for children 3 to 4 years old of working parents.
Mr. Hunt already announced earlier in the week some other steps to tackle what he called Britain’s “economic inactivity problem,” including changes to the way child care costs are paid to people receiving state benefits, revisions to how people with disabilities are assessed for work and additional money for skills training for people over 50.
In his speech, Mr. Hunt said the government would proceed with raising corporate taxes in April to 25 percent from 19 percent. But he said companies would benefit from tax relief made on investments, including allowing businesses to deduct the full cost of certain plant and machinery from their profits before tax.
Early on Wednesday, the Treasury said that it would extend the government’s subsidy for household energy bills by three more months, until the end of June, capping the average annual cost at 2,500 pounds, or about $3,000.
To encourage innovation, Mr. Hunt has also already announced plans for investment zones around research institutions, areas that would receive tax relief. That is in addition to changes to customs systems, an effort to cut post-Brexit red tape and make processes more efficient for international traders.
