An “improved economic picture” has helped Chancellor Jeremy Hunt promise a major expansion of free childcare and an extension of support for household energy costs.

The Chancellor said the energy price guarantee, which caps average household bills at £2,500, will be extended at its current level from April to June.

It had been due to rise to £3,000 in April and the cost of scrapping the planned 20% increase will amount to about £3 billion.

Prime Minister Rishi Sunak said: “We know people are worried about their bills rising in April so, to give people some peace of mind, we’re keeping the energy price guarantee at its current level until the summer, when gas prices are expected to fall.

“Continuing to hold down energy bills is part of our plan to help hardworking families with the cost of living and halve inflation this year.”

Falling global energy prices mean that the current level will be extended to “bridge the gap” until costs are expected to fall below the cap.

Mr Hunt said: “High energy bills are one of the biggest worries for families, which is why we’re maintaining the energy price guarantee at its current level.

“With energy bills set to fall from July onwards, this temporary change will bridge the gap and ease the pressure on families, while also helping to lower inflation too.”

Addressing Cabinet on Wednesday, Downing Street said the Chancellor promised a “growth Budget”.

A No 10 spokesman said: “He set out the improved economic picture following his autumn statement, explaining it paved the way for this growth Budget.

“He referenced plans for deregulation with Brexit freedoms, plans to invest billions in carbon capture and storage and develop nuclear energy, a boost to levelling up through 12 investment zones across the UK and a significant package to help people get into work, ranging from support for the over-50s, those on benefits, parents, and those with long-term health conditions.”

A key plank of the Budget is expected to be a package of measures aimed at removing barriers to work, with the childcare announcement a major part of that, as well as a move which will ease cost-of-living pressures.

The current provision of up to 30 hours a week of funded childcare in England for parents of three and four-year-olds is expected to be extended to also cover one and two-year-olds.

Paul Johnson, head of the independent economic think tank the Institute for Fiscal Studies, said sweeping reform of childcare is needed.

He said: “Many will welcome extension of free childcare. Look for funding though – funding current entitlement has been cut 13% since 2017.

“As universal support has expanded, targeted support for children most in need has contracted. Whole system is hugely complex. Needs proper review.”

Sluggish UK growth has dominated political and economic debate in recent months, while the challenge of inflation and widespread industrial disputes over public sector pay have not gone away.

The Budget takes place against a backdrop of strikes involving teachers, university lecturers, civil servants, junior doctors, London Underground drivers and BBC journalists.

The City is also feeling the impact of the shock affecting global markets following the collapse of Silicon Valley Bank.

Mr Hunt is expected to refer to the “difficult decisions” taken last November to stabilise the markets, following the short-lived premiership of Liz Truss, as he pitches a plan the Government hopes can deliver “sustainable” growth.

Lower-than-expected borrowing figures have created some good news for the Treasury on the public finances, but the Chancellor is still likely to proceed with caution and avoid any spending largesse.

“Today, we deliver the next part of our plan: a Budget for growth,” he is expected to say.

“Not just growth from emerging out of a downturn, but long-term, sustainable, healthy growth that pays for our NHS and schools, finds good jobs for young people, provides a safety net for older people, all whilst making our country one of the most prosperous in the world.”

Measures expected in the Budget include:

– An increase in the tax-free lifetime allowance (LTA) on pension savings, reported to rise from £1.07 million to as much as £1.8 million.

– Paying childcare support to parents on universal credit up front, rather than in arrears, and increasing the amount they can claim.

– A ramping-up of sanctions for claimants who do not look for or take up employment.

– The creation of 12 investment zones, eight in England, four in Scotland, Wales and Northern Ireland, benefiting from tax breaks, each backed by £80 million over five years.

– Some £63 million to help leisure centres with swimming pools meet energy costs and become more efficient.

– Ending the “prepayment penalty” for energy bills which sees households with prepayment meters charged more than those on direct debit.