Spring Budget 2023 Special

The Chancellor presented a ‘back to work’ budget focused on encouraging the economically inactive population to return to work with major changes to pensions and childcare funding announced.

Fortunately, the economic outlook is not as dire as predicted in November due to lower energy costs and higher tax revenues, resulting in some additional headroom which allowed the Chancellor to announce some significant measures. However, those hoping for sweeping tax cuts will be disappointed, as persistent low economic growth and public sector pay demands create challenges that make a broad relaxation of the tax burden unlikely in the near future.

There were some major announcements on pensions and childcare that could have a significant impact. With the pension ‘Lifetime Allowance’ set to be abolished and the ‘Annual Allowance’ rising by 50%, there are some exciting new pension planning opportunities for many people. Childcare was another focus of the Budget with extra funding announced for parents of young children. Both of these key measures are aimed at encouraging more people back to the labour market with the aim of boosting the British economy over the long-term.

Here are some of the key points from the Spring Budget 2023:

Pensions

• The ‘Lifetime Allowance’ is being abolished. This means there is no longer a limit on the amount anyone can accumulate in their pension without incurring tax. However, the maximum tax-free amount that can be taken will be capped at £268,275.
• The ‘Annual Allowance’ will rise from £40,000 to £60,000, meaning some higher earners will be able to contribute more to their pension and benefit from tax-relief.
• The ‘Money Purchase Annual Allowance’ will rise from £4,000 to £10,000 per year. This is the maximum that can be contributed to a pension after income has been accessed flexibly.

Income Tax

• No further changes were announced in relation to the personal allowance and tax bands. ‘Fiscal drag’ will mean there is an effective significant rise in Income Tax for many people.

Corporation Tax & Business

• It was confirmed that the Corporation Tax rate for companies with profits over £250,000 will rise from 19% to 25% with a sliding rate of between 19% and 25% for firms with profits of between £50,000 and £250,000.
• New reliefs were announced for business investments will be available.
• 12 new ‘Investment Zones’ across the UK were announced.

Other Taxes

• Fuel Duty was frozen with the 5p cut to fuel duty on petrol and diesel, due to end in April, kept for another year
• New tax reliefs were announced for beer, cider and wine sold in pubs.

Childcare & Work

• 30 hours of free childcare for working parents in England will be expanded to include one and two-year-olds. This will be rolled out in stages from April 2024 onwards.
• Additional childcare reforms will see new ‘incentive payments for new childminders, increasing childcare ratios and additional support with childcare costs for those on Universal Credit.
• To encourage more people into the workforce, there will be additional checks on health-related benefits, a new scheme to help those who are disabled and unemployed, funding for schemes to help retirees over 50 back to work and a relaxation on immigration rules for five key sectors to ease labour shortages.

Economy

• Official projections show the UK will avoid recession in 2023, but the economy is set to shrink by 0.2%.
• Inflation is projected to fall to 2.9% by the end of 2023.
• UK GDP growth is projected to be 1.8% in 2024, 2.5% in 2025 and 2.1% in 2026.

Energy

• Government energy subsidies to households to be extended at the current level until June 2023.
• Prepay meter charges to be brought in line with customers paying by Direct Debit.
• New commitments to invest in low-carbon energy projects.
• Nuclear power to be reclassified as ‘environmentally sustainable’ to secure more public funding.

Other Announcements

• A new commitment to raise defence spending by £11bn over the next five years was made.
• New funding for the UK’s AI industry was announced.
  A new streamlined approvals for new medical products will be put in place.
• Additional funding to help local councils with pothole repairs was announced

If you would like to talk about any of the issues covered in the Budget or need more general help with your finances, please get in touch with us.