Britain is issuing a call to work, with more free child care as an incentive

March 16, 2023

The British government announced an expansion of free child care, extended household energy subsidies, and bolstered business investment incentives on Wednesday, March 15, as ministers attempted to pull the nation’s economy out of stagnation, reports The New York Times.

Amid double-digit inflation, rising interest rates, and widespread labor strikes, Jeremy Huntthe 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.

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,” 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.

Hunt was named chancellor in mid-October 2022, during the turmoil of Liz Truss’s premiership, in a bid to calm financial markets roiled by Truss’s plans to cut taxes and raise spending. After scrapping almost all of Truss’s economic agenda, he was kept in his position by 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.

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 workforce 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. 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 workforce 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 nine months. Previously, the government offered 30 hours of free child care per week for children ages 3-4 of working parents.

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, Hunt said the government would proceed with raising corporate taxes in April to 25% from 19%. 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 British pounds, or about US$3,000.

Research contact: @nytimes