In his first Budget as Chancellor, Jeremy Hunt has announced several measures to re-engage those who have left the workforce and encourage business investment.
Below is a summary of the key points from the Spring Budget 2023.
The chancellor’s main focus in the Budget is to encourage people back to work. Currently, around 7 million working aged adults are classed as “economically inactive”, with more than a million having taken early retirement.
To tackle this issue and to stop pension limits being a barrier to remaining in work, the chancellor announced increases to pension allowances and abolished the pensions Lifetime Allowance.
Pensions Lifetime Allowance abolished
From April 2023, the chancellor has removed the cap on the pensions Lifetime Allowance (LTA) - currently £1,073,100 - and has abolished it altogether.
The LTA is the cap on total pension savings which an individual can build before an additional charge is potentially payable at certain future events. The abolition of the cap effectively saves a potential lifetime allowance charge of 25% or 55% for those who would otherwise have exceeded it at retirement.
Pensions Annual Allowance increased
After being frozen for nine years, Jeremy Hunt also announced that the tax-free annual allowance for pension pots will increase from £40,000 to £60,000.
The Annual Allowance is the amount that people can save into a pension each tax year (6 April to 5 April), depending on earnings. This means that for the upcoming 2023/24 tax year, the annual allowance is 50% higher at £60,000.
Tapered Annual Allowance to increase
From April 2023, the minimum Tapered Annual Allowance will increase from £4,000 to £10,000. The adjusted income threshold for the Tapered Annual Allowance will also be increased from £240,000 to £260,000 from 6 April 2023.
Money Purchase Annual Allowance to increase
Another useful incentive to encourage experienced people to return to work, the chancellor announced an increase to the Money Purchase Annual Allowance (MPAA).
The MPAA limits the amount of money you can save tax-efficiently into your pension after you have started drawing flexibly from your defined contribution pension savings.
The MPAA will increase from £4,000 to £10,000 from April 2023.
All the above measures are designed to increase the amount people can put aside for their pensions each year and save over their lifetime, all while minimising tax. The hope is that this will encourage fewer people to retire early.
The main rate of corporation tax, which is paid by businesses on taxable profits over £250,000, will increase from 19% to 25%.
Companies with profits between £50,000 and £250,000 will pay a rate between 19% and 25%.
For those with profits of less than £50,000 there is no change. They will continue to pay Corporation Tax at 19%.
However, to limit the impact of this increase, the chancellor will allow businesses to offset 100% of investments in new machinery and technology to lower their taxable profits.
To stimulate economic growth and to spur regional activity outside London, up to 12 successful investment zones will receive funding of £80 million each over five years. This money can be directed towards tax relief for businesses, training, and infrastructure.
To simplify international trade, the government will reduce paperwork and extend the submission deadline for customs forms under streamlined rules.
Elsewhere, fuel duty will remain frozen, continuing the 5p cut on petrol and diesel for another year.
Tobacco tax will increase by 2% above inflation and 6% above inflation for hand-rolling tobacco.
However, good news for beer drinkers, as the chancellor announced that he would “significantly increase the generosity of Draught Relief.” From 1 August, the duty on draught products in pubs will be up to 11p lower than the duty in supermarkets. The chancellor added, “British ale may be warm, but the duty on a pint is frozen.”
Government subsidies limiting household energy bills to £2,500 a year will be extended for three months until the end of June.
£200m will be allocated to align energy charges for prepayment meters with prices for customers paying by direct debit, affecting 4m households.
The government commits to investing £20bn over the next two decades in low-carbon energy projects, focusing on carbon capture and storage.
Nuclear energy will be classed as environmentally sustainable for investment purposes, with the promise of additional public funding.
£63m will be allocated to help leisure centres with rising swimming pool heating costs and to invest in energy efficiency improvements.
Work, Benefits & Childcare
The 30 hours of free childcare for working parents in England will be expanded to cover one and two-year-olds, rolled out in stages from April 2024.
Families on universal credit will receive childcare support upfront instead of in arrears, with the £646-a-month per child cap raised to £951.
A £600 "incentive payment" will be introduced for those becoming childminders, and relaxed rules in England will allow childminders to care for more children.
A new fitness-to-work testing regime will be implemented to qualify for health-related benefits.
The government will launch a new voluntary employment scheme for disabled people in England and Wales called Universal Support.
Stricter requirements for looking for work and increased job support will be implemented for lead child carers on universal credit.
£63m will be allocated for programmes to encourage retirees over 50 to return to work through "returnerships" and skills boot camps.
Immigration rules will be relaxed for five roles in the construction sector to ease labour shortages.
The Office for Budget Responsibility predicts the UK will avoid a recession in 2023, but the economy will shrink by 0.2%. Growth of 1.8% is forecast for the next year, with 2.5% in 2025 and 2.1% in 2026.
The UK's inflation rate is predicted to fall to 2.9% by the end of this year, down from 10.7% in the last three months of 2022.
The underlying debt is forecast to be 92.4% of GDP this year, rising to 93.7% in 2024.
A commitment has been made to raise defence spending by £11bn over the next five years.
Prison sentences will be imposed on those convicted of marketing tax avoidance schemes.
Additionally, £200m will be provided this year to help local councils in England repair potholes.
Over the next two years, an extra £10m will be allocated to charities in England working to prevent suicide.
The government also promises a streamlined approval process for new medical products.
Furthermore, £900m will be invested in a new supercomputer facility to support the UK's AI industry.
Chancellor Jeremy Hunt's Budget announcements focus on encouraging those who have left the workforce to return, boosting business investment, and supporting various sectors through financial allocations and policy changes.
It's essential to stay informed about these developments and understand how they may impact your personal finances and future decisions.
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