Chancellor Jeremy Hunt delivered his first Budget speech on 15 March 2023. Here’s how the so-called ‘Budget for Growth’ will impact you as consumers, parents and employees.
Arguably the most important part of the Budget wasn’t actually part of the Chancellor’s speech itself. The Budget kept in place the freeze on income tax allowances in England till 2028. That means more and more of English taxpayers’ income is becoming taxable, which isn’t great news.
This decision results in something called ‘fiscal drag’, which is the process of pushing more people into paying income tax while dragging others into a higher tax band.
Typically, tax brackets have been adjusted to keep pace with inflation, but they’ve been frozen in cash terms since April 2021. This means that as incomes rise, more people may find themselves falling into the 20% basic-rate income tax bracket (which starts at £12,571) while those with earnings nearing £50,000 drift into the higher 40% rate (which starts at £50,271).
This policy is particularly challenging right now, as many people’s income has risen to try to keep pace with the higher cost of living.
Energy bill support
The Energy Price Guarantee will continue at the current rate until June 2023, capping the annual energy bill at £2,500 for a typical user. It had previously been set to rise to £3,000.
Now, that energy price guarantee doesn’t mean your bill will max out at £2,500. You could end up paying more or less depending on how much energy you use. What it actually means is the Government has capped the price per unit of gas and electricity so someone who uses the average amount of energy will pay £2,500 per year.
Without any guarantee in place, a typical energy user would be paying £3,280 according to Ofgem, so it’s a big saving. Wholesale energy prices have fallen a lot this year, which has enabled the Government to keep the cap in place. That said, the energy prices we pay are still a lot higher than at the start of last year so hopefully they’ll come down further in the year.
The Budget also included a surprise development for the 4 million people who pay for their energy through prepayment meters, which work in a similar way as pay-as-you-go services. They have usually been charged more for their energy — a situation that Chancellor Jeremy Hunt called ‘clearly unfair’. But now they’ll pay the same as people who pay by direct debit, saving around £45 per year on energy bills.
Alcohol and fuel duty
While the duty we pay on alcohol will rise in line with inflation, there are new reliefs for beer, cider and wine sold in pubs from 1 August 2023.
Fuel duty has been frozen, once again. It hasn’t risen for 12 years, even though it was designed to increase in line with inflation. The recent 5p cut in fuel duty on petrol and diesel, due to end in April, has been extended for another year.
What we pay at the pumps for fuel isn’t just the cost of oil but there’s also VAT and fuel duty, which together make up around half of what we pay. Fuel duty will likely become less important as more and more of us start driving electric vehicles.
Removing the work capability assessment
The ‘work capability assessment’ will be abolished. The assessment was used to determine whether and to what extent welfare benefit claimants are capable of doing work or work-related activities.
This means disabled people will be able to seek work without fear of losing support, according to the Chancellor.
The lifetime pension allowance will be completely removed from April, which is a significant change. The allowance was just over £1.07 million.
Meanwhile, the annual pension allowance is going up by 50%, from £40,000 to £60,000, from 6 April 2023. The allowance covers how much people can put into their pension without having to pay additional tax.
Now, £60,000 sounds like a lot of money to you and me but we tend to undervalue how much money we need in retirement. For a comfortable retirement of £35,000 per year, you’ll need to have saved over £500,000. Read more on how to save for your retirement here.
There will be a limit on the value of any lump sum you take from your pension. For those without previous pension ‘protections’, the maximum will be retained at £268,275, which is 25% of the current lifetime pension allowance. This basically limits the tax-free cash available to retirees.
For people who are already drawing down on their pension, the total amount they can contribute tax-free under the Money Purchase Annual Allowance will increase from £4,000 to £10,000 from April 2023.
At Plum, we’ve been calling for childcare reform for some time. Earlier this month we handed a letter in to 10 Downing St. It was co-signed by organisations like the National Day Nurseries Association and the London Early Years Foundation, and it called for action around childcare from the government.
So we were thrilled to see the Government announce a big step forward for childcare provision. Parents, many of whom are struggling with rising costs, will be excited about the changes announced by the Chancellor.
The changes include:
- The 30 hours of free childcare for working parents in England has been extended to cover one and two-year-olds
- Families on universal credit will receive childcare support up front instead of in arrears, with the £646-a-month per child cap raised to £951
The roll-out of the additional free childcare hours will be phased:
- From April 2024, eligible parents will be able to access 15 hours of free childcare per week for 2-year olds
- From September 2024, eligible parents will be able to access 15 hours of free childcare per week for children aged between 9 months and 3 years of age
- From September 2025, eligible parents will be able to access the full 30 hours of free childcare per week for children aged from 9 months to 4 years of age
Extending 30 hours of free childcare for children from 9 months of age should make the transition at the end of parental leave more manageable.
However, childcare providers will need adequate investment from the Government to be able to deliver these additional free hours. To help grow childcare support, the Government will be trialling incentive payments for new childminders signing up to the profession.
So, that’s the spring budget in a nutshell.
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