Following the lacklustre Autumn Statement back in November, the spring budget focused on three key priorities set out by Jeremy Hunt. Namely, these are to halve inflation, grow the economy and reduce the public debt as a percentage of GDP.
The Autumn Statement brought with it a series of stealth tax rises through extended freezes to the majority of tax thresholds. This spring budget, therefore, is an important moment for Rishi Sunak’s government as it must resonate with voters prior to local elections in May.
Areas of particular focus included energy bills, education, childcare and pensions with no changes to Inheritance Tax or Capital Gains Tax, as expected. Let’s take a look at the different areas of the budget and what they might mean for savers going forward.
Firstly, the lifetime allowance (LTA) has been abolished from £1.073m. This will enable millions of savers to take advantage of the tax efficiencies of pensions to boost their retirement savings.
Annual allowance for pension contributions increased from £40,000 to £60,000. Both of these measures will be welcomed by those who want to increase their pension pot ahead of retirement.
It is, however, worth noting that despite the abolishment of the LTA, there is still a cap of £268,275 without protections on the amount of tax free withdrawals you can take from your pension.
Some other highlights:
- Money Purchase Annual Allowance increased from £4,000 to £10,000
- Corporation tax to increase to 25% from April, as expected
- Price cut to fuel duty will be extended for another year
- The minimum Tapered Annual Allowance increased from £4,000 to £10,000
- The adjusted income threshold for the Tapered Annual Allowance increased from £240,000 to £260,000
The Capital Gains Tax annual exemption is due to fall from £12,300 to £6,000 on 6 April 2023, and halve again from April 2024. Each time the allowance is reduced, the use of ISA investment wrappers only becomes more important for savers.
The fall in the dividend tax free allowance – reducing to £1,000 in 2023 and a further £500 in 2024 – is yet another incentive to maximise the use of your ISA.
Looking at the economy broadly, the Office for Budget Responsibility has forecasted that the UK will avoid recession this year. The UK’s inflation rate is, mercifully, predicted to fall from 10.7% (in the last quarter of 2022) to 2.9% by the end of 2023.
Hunt was confident on the subject of reducing the national debt, saying that we’re on track to have “debt falling as a percentage of GDP by the fifth year of the forecast.” Underlying debt is forecast to be 92.4% of GDP next year, rising to 93.7% in 2024-25 before peaking at 94.8% in 2026-27.
Some highlights in the budget:
- 12 new Investment Zones across the UK will see tax breaks and other benefits, funded by £80m each over the next five years
- Annual Investment Allowance for small businesses increased to £1m
- International traders will have longer to submit customs forms and reduced paperwork under streamlined rules
- Duty on draught products in pubs to be up to 11p lower than in supermarkets
Energy and climate
Perhaps more than ever, all eyes were on energy as we step out of a winter that has seen many people struggling to afford the cost of heating their homes.
The £2,500 annual energy price cap has been extended for three months, ending in June. Hunt also announced an Initiative to bring energy charges for prepayment metres into line with prices for customers paying by direct debit.
The budget included a £20 billion commitment to investing in low-carbon energy projects – focusing on carbon capture and storage – over the next two decades. The chancellor also pledged £63 million to help leisure centres with rising costs and finding ways to become more energy efficient.
Jobs and work
Finally, let’s take a quick look at the plans for job support and work benefits. Here are a few highlights from the speech:
- Increased job support for lead child carers on universal credit
- New fitness-to-work requirements for health-related benefits
- More access to “skills boot camps” to encourage those over 50 to return to the workplace
- A £400m scheme to support mental and physical health