London: On Wednesday, British Finance Minister Jeremy Hunt unveiled a multibillion-pound package of measures designed to increase access to childcare, modernise pensions, and overhaul the welfare system in order to help more people find employment.
Due to a shrinking labour force caused by a confluence of factors such as an increase in early retirement, chronic illness, and migration patterns, Britain's post-COVID labour market recovery is lagging behind that of its competitors abroad.
The government and Bank of England worry that the shortage of jobs is causing inflation and slowing growth. Today, I propose changes to get rid of obstacles that prevent those who want to work from doing so, Hunt said in a budget statement to the legislature.
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Hunt announced a surprise decision to eliminate a limit on the amount of tax-free pension money an individual can accumulate in order to prevent older workers, primarily doctors, from retiring early to avoid pension taxes.
Additionally, he increased the annual limit on tax-free pension contributions to 60,000 pounds.
Hunt announced that working parents with children over nine months old would be entitled to 30 hours of free childcare per week by September 2025, expanding the current scheme, which only applies to children between the ages of three and four. Hunt acknowledged that the high cost of childcare, by international standards, was holding the economy back.
In what he called "the biggest change to our welfare system in a decade," Hunt added that recipients of disabled benefits would be permitted to look for employment without risking losing their means of support. Benefit claimants who are capable of working but choose not to will face harsher penalties, he said.
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According to the independent Office for Budget Responsibility, the cost of the pensions, welfare, and childcare reforms as a whole would increase from 1 billion pounds in 2023–2024 to 7.1 billion pounds by 2027–2028, with childcare accounting for the vast majority of that sum.
The Conservative government has been accused of favouring higher earners, who traditionally make up the party's base of support, because of the pensions reform. Keir Starmer, the leader of the opposition Labour Party, questioned whether parents would be able to take advantage of the free childcare hours and claimed that the pension tax change would result in a permanent tax cut for the wealthiest 1%.
The reality is that an economy with weak foundations can be seen in plain sight in our labour market, he claimed. Simply put, our participation crisis hasn't occurred elsewhere to this degree. A larger reform agenda is required.
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The government announced that, in order to address labour shortages, it would increase the number of business visas available to Britons and add five occupations in the construction industry to a shortage list, making it simpler for employers to sponsor foreign workers.