On Wednesday 15 March 2023, chancellor Jeremy Hunt presented his spring Budget.
Focusing on the government's aims to halve inflation, reduce public debt, and boost economic growth, Hunt delivered his first official Budget alongside the latest economic and fiscal outlook from the Office for Budget Responsibility (OBR).
“Despite continuing global instability, the OBR report today that inflation in the UK will fall from 10.7% in the final quarter of last year to 2.9% by the end of 2023.”
Hunt opened his speech by admitting that, in the autumn, the government “took difficult decisions to deliver stability and sound money”.
Today, he promised “a budget for growth”.
“Not just growth from emerging out of a downturn. But long-term, sustainable, healthy growth that pays for our NHS and schools, finds good jobs for young people, provides a safety net for older people […] all whilst making our country one of the most prosperous in the world.”
Here are the key points of the spring Budget, and what they might mean for you.
Encouraging early retirees back into work
Jeremy Hunt’s primary focus with his spring Budget is to encourage Britain back to work. Around 7 million working aged adults are classed as “economically inactive”. Of these, more than a million people have taken early retirement.
To address this issue and to stop pension limits “from acting as a barrier to remaining in work”, the chancellor announced increases to pension allowances and abolished the Lifetime Allowance.
Pensions Lifetime Allowance abolished
Following conversations with senior doctors in the NHS and other experienced professionals, the pensions Lifetime Allowance (LTA) has been abolished.
The LTA is the maximum amount of tax-efficient pension savings you can accrue in your lifetime and includes the total value of your pensions, including your contributions, your employer’s contributions from your workplace pension, tax relief, and investment returns.
From April 2023, there will be no limit on the amount of total tax-efficient pension savings you can accrue.
Pensions Annual Allowance increased
The chancellor announced that the Annual Allowance will increase from £40,000 to £60,000 from 6 April 2023.
The Annual Allowance is the amount that you can save into your pension each tax year (6 April to 5 April) while still being able to benefit from tax relief. In the 2023/24 tax year, this will now be £60,000.
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.
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.
These announcements have increased the amount people can put aside for their pensions
In abolishing the LTA and increasing the Annual Allowance, MPAA, and Tapered Annual Allowance the government has increased 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 also dissuade people from retiring early.
Savers and investors see key subscription limits frozen
The annual subscription limit for adult ISAs will remain at £20,000.
Junior Individual Savings Accounts (JISA) and Child Trust Fund accounts will also remain static at £9,000.
No changes to planned Corporation Tax rises, but a new incentive to invest
From April 2023, Corporation Tax will increase from 19% to 25%. In acknowledgement of this move and to limit the impact of the increase, Hunt will allow businesses to offset 100% of investments in infrastructure and factory and machinery assets against profits for tax purposes.
The full force of this tax rise will hit those businesses with profits exceeding £250,000. Meanwhile, companies with profits of between £50,000 and £250,000 will get marginal relief.
For those with profits of less than £50,000 there is no change. They will continue to pay Corporation Tax at 19%.
Plan for business growth
As part of the Treasury's plan to stimulate the UK's sluggish 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.
Eight places in England have been shortlisted to host investment zones. These are:
- East Midlands
- Greater Manchester
- North East
- South Yorkshire
- Tees Valley
- West Midlands
- West Yorkshire
A further four zones will sit across Scotland, Wales and Northern Ireland.
Energy price guarantee extended
The energy price guarantee (EPG) that limits the typical annual bill to £2,500 has been extended.
The EPG had been due to change in April, with the ceiling increasing to £3,000 a year, but now the present level will remain for a further three months, until the end of June 2023. Hunt said: “This temporary change will bridge the gap and ease the pressure on families, while also helping to lower inflation too.”
The chancellor added, “This measure will save the average family a further £160 on top of the energy support measures already announced.”
As petrol and diesel prices continue to be volatile, the chancellor announced continuing support for households and businesses by extending the temporary 5p fuel duty for a further 12 months.
“That saves the average driver £100 next year and around £200 since the 5p cut was introduced,” Jeremy Hunt said.
This one-year extension will cost £6 billion.
In good news for beer drinkers, Hunt 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.
As the chancellor said, “British ale may be warm, but the duty on a pint is frozen.”
Get in touch
If you have any questions about how the spring Budget will affect you and your finances, please get in touch.
All information is from the spring Budget document and the government’s spring Budget bulletin.
The content of this spring Budget summary is intended for general information purposes only. The content should not be relied upon in its entirety and shall not be deemed to be or constitute advice.
While we believe this interpretation to be correct, it cannot be guaranteed and we cannot accept any responsibility for any action taken or refrained from being taken as a result of the information contained within this summary. Please obtain professional advice before entering into or altering any new arrangement.