Jeremy Hunt has unveiled his first budget as Chancellor. It seems like a lifetime has passed since we had the mini-budget of his predecessor in September 2022 – which prompted Hunt to make a ‘clean up’ Autumn Statement in November.
Since then, the Chancellor has very much tried to keep things quiet, calm and fiscally responsible in an attempt to repair some of the damage done to Britain’s financial reputation. Today was the first time we got to see what Mr Hunt’s plans for the UK economy and tax position were going forward.
In terms of the economic backdrop of the UK, the Chancellor outlined that inflation was forecast to fall to 2.9% by the end of the year – which will be a massive relief to households and businesses. The UK will also now avoid a recession in 2023.
In a nutshell, his Spring Budget is aimed at keeping people in work by increasing their pension allowances, and by providing more help with childcare costs. Here’s a deep dive.
The major taxation change concerned pensions. Unsurprisingly as a former Health Secretary, the Chancellor was very aware of the issues facing the NHS and pensions.
For background, senior doctors and consultants were receiving tax bills for working their normal hours because they were going over various pension tax allowances. This was given as a reason for many senior NHS practitioners retiring early. To fix this, the Chancellor announced the following changes.
Lifetime Allowance (LTA)
This is an allowance, set by the government, above which pensions were heavily taxed when you came to withdraw (or at certain other ‘crystallisation events’, such as death). You could have more than the maximum number in your pension, but you would have been penalised on any amount above the LTA.
This allowance was £1.07m, but it will be abolished from April 2024. However, LTA tax charges will be abolished from April 2023.
Annual Allowance (AA)
This is the max you can pay into a pension on an annual basis and still receive tax relief. This includes your contributions, employer contributions and tax relief.
This was £40,000, but it will increase to £60,000.
Money Purchase Annual Allowance (MPAA)
Once you start taking money from your pension, the above annual allowance reduces significantly. And, once you start taking pension income, you can only put a much smaller amount back into your pension.
This was £4,000 – it will now rise to £10,000.
If these new numbers seem high, it’s because they are. And while these changes will only impact a small proportion of the population, the direction of travel – reducing the restrictions on how much people can save into their pensions – is positive.
At the same time, the Chancellor announced the limits on ISAs, Lifetime ISAs and JISAs would remain unchanged.
Energy price guarantee
Over the course of the winter the government had capped the price of a ‘typical’ household energy bill at £2,500. This was due to rise in April 2023 to £3,000 – but that rise has been scrapped.
However, the £400 winter discount most people have received on their bills will finish, so most households will see their bills rise. The hope is, that with wholesale energy prices lower than they were last year after a relatively mild winter, household bills will start to follow in the coming months.
In a step that will provide significant help to struggling families, the Chancellor announced that the free 30 hours of childcare a week that three- and four-year olds get will be expanded to cover children aged 9 months or older. The government also announced a £600 incentive for those looking to become childminders, rising to £1,200 if they join through an agency.
In addition, families on Universal Credit will now get childcare support paid for upfront rather than having to claim it back, which caused significant cash flow issues for many families. Finally, the amount families on Universal Credit can claim for childcare support increased to £951 a month for one child, and to £1,630 for two children.
This is a large expansion of the government provision for childcare – and it fits in with the Chancellor’s overall message to remove as many barriers as possible for those who want to return to the workforce.
You can learn more about what the Spring Budget means for you in our end of tax year Q&A on Monday 20th March at 6pm.