The government’s announcement of additional free childcare places will have a greater impact on GDP going forward than any other fiscal policy measure since 2010, according to the Office for Budget Responsibility (OBR).
The government announced that, from next April, children under the age of two will be eligible for 30 hours of free childcare.
The OBR believes this will increase the size of the labour force as it enables more parents to return to work.
It believes this will add 110,000 new workers to the economy, an increase of 0.3 per cent in the size of the labour force.
The organisation believes many of those who re-enter the workforce will take part-time roles and so will have lower than average earnings.
The OBR said the net contribution of all of this will be an increase of 0.2 per cent in GDP relative to what it would have been if this policy had not been enacted.
The 0.2 per cent impact is calculated from the 2027-28 fiscal year.
The OBR said this change “is the largest upward revision to a five year forecast” it has made as a result of a government decision since the organisation was established in 2010.
As part of the Budget announcement, the OBR also revised its view of UK economic growth overall, meaning it now expects the economy to contract by 0.2 per cent this year, having previously anticipated it would contract by more than 1 per cent.
James Lynch fixed income fund manager at Aegon Asset Management said: “The chancellor’s budget was not particularly exciting – this is a very good thing from a UK perspective. Unless you are close to retirement with a large pension pot that is, as the lifetime allowance has been scrapped, if you are interested in this, there will be plenty to read in the coming days and weeks.”
He added: “At the same time we always get the Debt Management Office remit for gilt issuance for the year ahead. Once again this was not particularly exiting, all pretty much in line at £241bn which is a lot lower than some feared back in the depths of the gilt crisis of Sep/Oct 22, £300bn was not out of the question then."
david.thorpe@ft.com
