Analysis of the Spring Budget 2023

PolicyEngine analysis estimates the impact of the EPG extension and the fuel duty freeze.

See the full impact on PolicyEngine here.

Today saw the announcement of the 2023 Spring Budget for 2023, with significant changes to energy subsidies in particular. In this report, we analyse the budgetary, distributional, poverty, and inequality aspects of two of the largest reforms using data from the PolicyEngine UK microsimulation model.

• The Energy Price Guarantee (EPG) is fixed at £2,500 for three extra months (April to June), down from the £3,000 it would have been. The EPG limits the average households’ energy bills, with the government covering spending (for the fixed average household energy usage) above the cap. We estimate the cost of this policy is £3.1 billion.

• Fuel duty is frozen at 53p per litre, instead of increasing to 65p. This continues the temporary 5p cut from last year and cancels the planned Retail Price Index (RPI) inflation increase. We estimate the cost of this policy is £4.2 billion.¹

The combined cost of these policy changes is £7.3 billion. This is similar to HM Treasury’s estimate for FY 2023–24 at £7.8bn.²

The average gain per household across income deciles ranges from £153.03 in the first decile to £484.43 in the tenth decile.

When looking at the relative gains, the impact is largest for the first decile at 1.5%, while the smallest impact is for the tenth decile at 0.4%.

The reforms contribute to a reduction in poverty rates. The overall poverty rate drops from 14.96% to 14.53%, while deep poverty decreases from 2.11% to 2.05%. Children and seniors see reductions in poverty as well, with the child poverty rate declining from 21.71% to 21.24% and the senior poverty rate falling from 8.47% to 7.86%.

When considering gender, both males and females experience a reduction in poverty rates, with females seeing a decrease from 15.61% to 15.14% and males from 14.30% to 13.92%.

In terms of inequality, the Gini coefficient decreases slightly from 0.336 to 0.335, and the share of income for the top 10% and top 1% of earners also declines slightly.

The Spring Budget 2023’s policy changes regarding energy and fuel have a budgetary impact of £7.3 billion, with nearly all people (98%) gaining from these reforms. The policies have a larger relative impact on lower-income households, contribute to a reduction in poverty rates and inequality under several different metrics.

nikhil woodruff
PolicyEngine's Co-founder and CTO

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