Despite many of the key announcements being leaked in advance, Jeremy Hunt’s first budget did contain some surprises. The budget was presented in a context of slightly improved fiscal conditions in comparison to the Autumn 2022 forecast.
The chancellor’s first raft of measures in Autumn 2022 were intended to settle and reassure markets following the turmoil of the Truss/Kwarteng fiscal experiment. On this occasion however, he and Sunak in their self-styled ‘Budget for Growth’ have sought to introduce measures to increase business investment and tackle barriers that prevent people working or returning to work. The budget also includes tax hikes, such as an increase in corporation tax and freezing of income tax thresholds, to help pay for recent spending.
So, what were the key announcements from the budget?
Economy –
- The Office for Budget Responsibility (OBR) revised estimate that inflation would fall to 2.9% by the end of 2023 was welcome news for consumers already struggling with the increased cost of living.
- However, falling inflation is not deflation, prices are still going up albeit they are forecast to do so at a slower rate.
- The possibility of unexpected interest-rate rises has also receded somewhat in light of OBR predictions although it must be remembered that it is the Bank of England MPC and not the OBR that has the final say on interest rates.
Pension –
- The annual allowance is the maximum sum you can pay into your pensions each year. This is set to increase from £40,000 to £60,000 from the start of next tax year although those on very high incomes will have their annual allowance tapered away.
- If you have accessed your pension already by taking income via flexi-access drawdown you will have a lower annual allowance, called the money purchase annual allowance. This too will be increased from £4,000 to £10,000.
- Broadly, the lifetime allowance is a maximum amount that you can accrue in pension savings without incurring extra tax charges. Your pension gets measured against the lifetime allowance (LTA) at certain ‘benefit crystallisation events’ and in some cases protections will apply. Since its introduction in 2006, the lifetime allowance has been as high as £1.8 million but has been frozen at £1,073,100 since 2020/21. Jeremy Hunt’s announced that the LTA would be abolished. One last note is that the maximum tax free cash will still be limited to 25% of the current LTA limit.
Business –
- The UK Chancellor of the Exchequer announced in the Budget 2021 that corporation tax would increase from 19% to 25% in April 2023. This is a significant increase.
- However, to help smaller businesses cope with the increase in corporation tax, the Chancellor also announced some tax incentives. These include an increase in the annual investment allowance (AIA) to £1 million. The AIA is a tax relief that allows businesses to deduct the full cost of qualifying capital assets, such as machinery and equipment, from their taxable profits in the year of purchase.
Energy –
- The Chancellor had previously announced in his Autumn Statement that the average household energy bill was expected to increase from £2,500 to £3,000 starting in April 2023. However, in a recent statement, the Chancellor announced that the energy price guarantee would remain at £2,500 until the end of June.
- Fuel duty was cut by 5p last March, and it will stay at its current level for another year.
Childcare
- An expansion of the 30 hours free childcare, currently available from age 3, to include ages 9 months to 2 years. This will lead to an estimated doubling of spending on this benefit.
- There will also be a change to the carer:child ratio for childcare providers which will have the effect of expanding existing capacity. Furthermore, these measures are being phased in from 2024 to allow for the necessary capacity to be put in place by providers.