2023 Spring Budget – Potholes, Pints, Parents and Pensions!
The Chancellor set the theme of his Spring Budget Statement by saying that the UK economy was on the right track and that he wanted to take steps to promote sustainable, healthy, long-term growth in the economy. Many will have been cheered by the confirmation from the Office of Budget Responsibility that the UK will not enter a technical recession this year, and that inflation is predicted to fall to half its current level. However, we are in the midst of a cost-of-living crisis and what most of the people I speak to are really concerned about, are the measures which were introduced in the budget which will directly impact them and their businesses.
Making Work Pay
Central to the announcements made, were measures which set out to tackle key sectors of the potential workforce who are currently unable to work. The Chancellor pledged that no one should be pushed out of the workforce for tax reasons and introduced changes to childcare, disability benefits and those over 50.
Childcare
Some of the planned changes to childcare were leaked in the days before they were formally announced. These generated a lot of positive reactions amongst parents who are struggling with the rising costs of childcare and for whom the inability to pay for adequate childcare was preventing them from working the hours they want to.
The government has pledged to provide 30 hours of free childcare for all children of qualifying parents aged over nine months. This will be phased in, with 15 hours of childcare initially being offered to two-year-olds from April 2024, until it is fully implemented from September 2025. In the past, the provision of free childcare has been difficult to implement because childcare providers were required to meet certain staff-to-child ratios, and the per-hour allowance the government was paying them was insufficient to cover the real cost to childcare providers. The result was that many providers simply closed their doors, or found ways to charge top-up fees. As part of the package announced today, the government is reducing the staff-to-child ratio to one staff member for every five children and is offering incentive payments to encourage providers to offer the provision.
Other measures include an increase in the maximum amount people on Universal Credit can claim for childcare to £950 for one child and £1,630 for two children and that the childcare will be paid in advance rather than requiring parents to fund the first month themselves.
Disability Reform
The government is publishing a white paper on disability benefits reform. The government recognises that technology allows many to undertake work and the work capability assessment which many saw as not fit for purpose will be abolished. Whilst the intention is that disabled people will be able to seek work without fear of losing support, the reaction from the sector has been cautious with commentators wary as to the detail of the scheme.
Older Workers
A lot of time was devoted to measures aimed at getting the up to 1m over 50-year-olds back into the workforce. The government will increase funding of its mid-life MOT strategy and a “returnership” scheme (similar to an apprenticeship scheme) will be introduced.
Cost of Living Crisis
Jeremy Hunt reminded the House that the government is providing support to soften the effects of the current crisis. Swimming pools and leisure centres will receive additional funding but the key announcements were around energy and fuel costs.
Energy Costs
The Energy Price Guarantee had been set to expire at the end of March 2023. This will now continue for a further three months until the end of June 2023 so that energy bills for a typical household will be limited to £2,500 a year. The winter discount which saw consumers credited with £400 will not be continued. Importantly, the premium paid by those on prepayment meters will end and vulnerable families will not be charged more than customers standard variable tariffs
Fuel Duty
The cost of motoring is always a big issue (even Eddie Stobart “the road haulage king” had a mention) and motorists will be pleased with the announcement that 4 million potholes are to be repaired. Fuel duty is to be frozen again and the current 5p reduction will remain in place for another year. Interestingly, if fuel duty had been increased in line with inflation it would have resulted in a 12p per litre rise in petrol and diesel prices. Fuel duties have been frozen since 2011 and this freeze will cost the treasury around £6 billion. As this is the same amount which the government says is required to fund pay increases to teachers, nurses and other public sector workers, the question has been asked whether the public would have accepted a rise in fuel duty in order to fund these pay rises. A poll I ran online was inconclusive, and perhaps now is the time to assess other ways of raising revenue from motorists.
Alcohol Duty
Support for pubs delivered one of the less catchy sound bites with the Chancellor keen to emphasise that although Alcohol duty will rise with inflation, the ‘Brexit Pubs Guarantee’ would see the duty on draught products in pubs reduced by up to 11p compared to supermarkets and that "British ale may be warm, but the duty on a pint is frozen."
Business
Despite calls to scale back the planned increase in the corporation tax rate to 25% for companies making profits in excess of £250,000, this will still be going ahead from April 2023. Interestingly, the Chancellor attempted to counter the argument that higher rates of corporation tax actually result in a reduced tax take and that they deter investment in the UK by saying that even the lower rate of 19% did not incentivise investment as effectively as countries with higher headline rates. Instead, he chose to encourage enterprise and investment by confirming that the Annual Investment Allowance would be increased to £1m and that the ‘130% Super Deduction’ which ends at the end of March will be replaced by a new scheme allowing businesses to ‘fully expense’ expenditure on plant, machinery and IT equipment for the next three years. He also introduced an “enhanced” Research and Development credit, which allows eligible small or medium-sized businesses to claim £27 back for every £100 spent on R&D.
Disappointingly, help with energy bills previously delivered via the Energy Bill Relief Scheme will be replaced by the Energy Bills Discount Scheme which gives a lower level of support.
Personal Tax
Personal tax thresholds – ie personal allowance, basic and higher-rate thresholds for income tax – are maintained until April 2028 at a current level of £12,570 and £50,270. The additional rate threshold is reduced from £150,000 to £125,140 from 6 April 2023. The freeze on the thresholds will bring in £110.7bn over 6 years as more taxpayers are brought into tax and into the Higher Rate tax band.
One of the big announcements of the day was the abolishment of the lifetime pension allowance. Under the current rules, the lifetime allowance was £1.07 million, with amounts in excess of that taxed at 55%. In addition, the maximum amount which can be paid into a pension every year is to be increased to £60,000. The money purchase annual allowance which applies to those who have already started drawing a pension and reinvesting into it will be increased from £4,000 to £10,000. Whilst these measures are principally going to benefit the very wealthy (most employees in auto-enrolment pension schemes will probably only have paid £60,000 into their pension pulse over the course of their entire employment lives) it is hoped that the measure will convince senior doctors who are opting to retire early because of the way their pensions are taxed, to remain in work.
Additional Points:
- From 1 April 2023, the National Living Wage is increased to £10.42 an hour, for those aged 23 and over.
- From April 2024 investors in cryptocurrencies will have to report the transactions separately on their Self-Assessment tax return.
- Businesses can potentially claim 100% of the costs of installing an electric vehicle charging point as a capital allowance. The government extended the 100% First Year Allowance for electric vehicle charge points to 31 March 2025 for corporation tax purposes and 5 April 2025 for income tax purposes.
- The annual exemption amount for capital gains tax for individuals will change, from £12,300 to £6,000 from April 2023, then £3,000 from April 2024.
- The dividend allowance is reduced from £2,000 to £1,000 from April 2023 and to £500 from April 2024. The threshold of £2,000 has been in place since April 2018. From 6 April 2022, dividends are taxed at 8.75% (basic rate), 33.75% (higher rate) and 39.35% (additional rate).
- From April 2024, tax relief will only be given on donations by companies to UK charities and not to charities in the European Economic Area.
- To combat tax avoidance, sentences in most severe cases of tax fraud can be doubled to 14 years and the government will make it a criminal offence to promote an avoidance scheme if HMRC have asked them to stop. (It has been pointed out though, that tax avoidance isn’t actually illegal).
So was it a budget for growth, and will those potholes get filled? I leave you to decide.
If you would like to discuss the 2023 Budget in further detail, don't hesitate to get in touch with Yedidya Zaiden by clicking here.