British finance minister Jeremy Hunt has announced a bigger-than-expected cut in social security contributions and made incentives for business investment permanent in a bid to speed up the country's sluggish economy.
Mr Hunt, who is seeking to boost the fortunes of Prime Minister Rishi Sunak's struggling Conservative Party ahead of an election expected next year, announced big increases in welfare payments and the state pension.
He said the government was nevertheless set to meet its targets for the public finances, citing forecasts from the Office for Budget Responsibility, Britain's fiscal watchdog.
"After a global pandemic and energy crisis, we have taken difficult decisions to put our economy back on track," Hunt said at the start of his speech.
"Rather than a recession, the economy has grown. Rather than falling as predicted, real incomes have risen. Our plan for the British economy is working. But the work is not done."
To cheers from Conservative politicians, Hunt announced he was cutting the rate of contributions to the National Insurance social security system for employees by two percentage points to 10%, along with a smaller cut for self-employed workers.
He said measures in his plan would increase business investment by around £20 billion a year within a decade, or nearly 1% of GDP.
"That is the biggest ever boost for business investment in modern times," Hunt said.
In the short term, at least, Britain's economy looks stuck in a slow gear.
Gross domestic product is expected to grow by 0.7% in 2024, much weaker than the expansion of 1.8% forecast in the OBR's previous outlook, published in March.
The OBR also said economic output would grow by 1.4% in 2025 and by 1.9% in 2026 - weaker than its previous forecasts of 2.5% and 2.1% respectively.
Britain's economy has struggled with high inflation and the new OBR forecasts showed the consumer price index was expected to grow by 2.8% next year, up from the March forecast of 0.9%.
Sunak this week promised "responsible" tax cuts, mindful of last year's "mini-budget" turmoil in financial markets triggered by his predecessor Liz Truss's plans for much bigger tax cuts.
This time last year, the newly installed Sunak and Hunt raised taxes sharply to quell the bond market mayhem, and the current parliament is seen on track to have introduced the biggest tax increases of any UK legislature since World War Two.
Britain's economy has been burdened by the highest inflation rate among its rich country peers although the pace of price growth has slowed from more than 11% just over a year ago to 4.6% in October.
The budget watchdog's new forecasts pointed to a slightly slower pace of government borrowing in the coming years - on average £700m less per year than forecast in March.
Meanwhile, Jeremy Hunt said today the UK government would increase benefits in line with September's inflation figure of 6.7% rather than the October rate of 4.6%.
"The government has decided to increase Universal Credit and other benefits from next April by 6.7% in line with September's inflation figure, an average increase of £470 for 5.5 million households next year," Mr Hunt told parliament.
UK finance minister Jeremy Hunt also said today that the publicly funded state pension will increase by 8.5% from April 2024.
The increase is based on average earnings data published in September and was in line with the government's "triple lock" policy on pension changes.
The triple lock is a UK government promise to raise the value of publicly funded pensions by whichever is highest out of the level of earnings, inflation or 2.5%.
Ahead of Hunt's budget update statement, media reports had suggested he could raise the pension by a lower figure to save the public purse nearly £1 billion a year.
"Today we honour our commitment to the triple lock in full," Hunt said, adding it was "one of the largest ever cash increases to the state pension".
