The current Chancellor Jeremy Hunt has set out what’s in the Spring Budget today (15 March), and there’s some major news.
The Budget is worked out by the Chancellor of the Exchequer with help from his office, the Treasury; the government department which oversees the country’s finances. There was a key focus in this budget; it’s a budget for long-term, sustainable, and healthy growth.
If you want a quick glance, the key announcements are:
- Free childcare for all under-5s
- The energy price guarantee (EPG) has been extended for a further three months
- Prepayment energy meter bills to be cut by £45
- Fuel duty – saving 12p a litre on fuel
- Benefits system to be rebooted
- Getting over-50s back to work
- Lifetime allowance axed
- Alcohol and cigarette prices to increase
- The planned rise in corporation tax will go ahead, Jeremy Hunt’s budget gas confirmed. This will kick in from 6 April and will hit businesses with profits of more than £250,000.
- The rate of price rises, or inflation, is forecast to fall to 2.9% by the end of 2023, according to the OBR.
Ready for a deeper dive? Let’s unpack it.
Hunt says no to recession
The Office for Budget Responsibility forecast that because of changing international factors and the measures the Chancellor takes, the UK will not now enter a technical recession this year. They forecast that the Treasury will meet the Prime Minister’s priorities to halve inflation, reduce debt, and get the economy growing.
“The OBR forecast we will not enter a recession at all this year with a contraction of just 0.2%. And after this year the UK economy will grow in every single year of the forecast period: by 1.8% in 2024; 2.5% in 2025; 2.1% in 2026; and 1.9% in 2027.”
Defence budget to get £11bn over the next 5 years
The Chancellor also confirmed the government would add £11bn to the defence budget over the next five years and it’ll be nearly 2.25% of GDP by 2025.
He reminded MPs that we were the first large European country to commit to 2% of GDP for defence and will raise that to 2.5% as soon as fiscal and economic circumstances allow.
Brexit pub guarantee = beer tax frozen
Tax on draught beer in pubs will remain frozen from 1 August this year, chancellor Jeremy Hunt has announced. Delivering his Spring Budget on Wednesday, Mr Hunt said he would “significantly increase the generosity of draught relief” which he said could not have been done inside the EU.
The duty on draught products in pubs will be up to 11p lower than the duty in supermarkets, a differential that’ll be maintained as part of a new Brexit pubs guarantees. Hunt added “British ale may be warm, but the duty on a pint is frozen.”
This change will also apply to “every pub in Northern Ireland” due to the Windsor Framework.
Alcohol and cigarette prices
The tax on alcohol will rise 10.1% in August, but there will be a separate rule for draft beers in pubs, which will mean the duty on draft pints is 11p lower than in supermarkets.
For smokers however, the pain will be immediate, and the duty on cigarettes will rise by RPI plus 2%, which is almost 15% and could add around £1.75 to the price of cigarettes. Hand-rolling tobacco will increase by 19%. These changes will take effect from 6pm on 15 March 2023.
Fuel duty is supposed to rise in line with the retail price index (RPI) measure of inflation every year. However, it’s been scrapped for the past 12 years.
The chancellor has confirmed that it’ll stay frozen for another 12 months. This will save drivers 7p on every litre of fuel. The temporary 5p fuel duty cut – announced by ex-chancellor Rishi Sunak – will also be extended for another year.
Combined, this equates to a saving of around 12p a litre on fuel.
Hunt highlights UK’s ‘innovation industries’
Jeremy Hunt said, “declinists are wrong” about the future of the country as he highlighted the country’s “innovation industries”. He added that the UK’s film and TV industry has become Europe’s largest, with the creative industries growing at twice the rate of the economy. The UK’s advanced manufacturing industries produce around half the world’s large civil aircraft wings and thanks to a “clean energy miracle” the UK has become a world leader in offshore wind.
£200m in local regeneration projects
Chancellor will invest over £200m in local regeneration projects in the widescale levelling-up series. The chancellor announced a series of levelling-up and local transport-related funding pots.
Jeremy Hunt told the Commons: “I will invest over £200m in high-quality local regeneration projects across England including the regeneration of Tipton town centre and the Marsden New Mills Redevelopment Scheme. I am also announcing a further £161m for regeneration projects in Mayoral Combined Authorities and the Greater London Authority.
“And I will make over £400m available for new Levelling Up Partnerships in areas that include Redcar and Cleveland, Blackburn, Oldham, Rochdale, Mansfield, South Tyneside, and Bassetlaw.”
There will also be a second round of the City Region Sustainable Transport Settlements, allocating £8.8 billion over the next five-year funding period.
£200m to tackle potholes
An additional £200 million has been allocated to the UK’s pothole repair budget, bringing the total funds available to local authorities for road maintenance to £500 million for the financial year 2023/24.
This increase is expected to fix the equivalent of up to four million additional potholes across the country.
However, the funds can also be used for general road improvement, including resurfacing and repairs and renewals, such as keeping bridges and major structures open.
Returnerships – Apprenticeships for over 50’s
Apprenticeship-style programmes, called “returnerships”, will help people aged over 50 to learn new skills and return to work, while the tax-free allowance on how much someone can save into their pension pot before they’re hit with a tax charge has also been increased.
Pension lifetime allowance abolished
In an eye-catching bid to lure over-50s who took early retirement back to work, the Chancellor unveiled generous pension tax changes. He surprised MPs by abolishing the lifetime allowance – the maximum amount that workers can put into their pension pots before they’re taxed – instead of simply raising the threshold, as had been predicted.
The lifetime allowance is currently just over £1m. In a nod to concerns that pension taxes have prompted many clinicians to quit early, Mr Hunt said the change meant 80% of NHS doctors would no longer pay taxes on their pensions.
“No one should be pushed out of the workforce for tax reasons,” the Chancellor said.
Annual allowance for pensions increased
People will also be able to contribute higher amounts to their pensions tax-free every year, thanks to increases to the annual allowance and the money purchase annual allowance (MPAA).
The annual allowance restricts how much savers can contribute to their pensions every year and will increase from £40,000 to £60,000. The change should be helpful for those who are looking to catch up with their retirement savings later in their careers, such as business owners.
Energy bills support
The Government’s Energy Price Guarantee, which subsidises household energy costs above a certain threshold, was previously scheduled to become less generous from April 1. This would have seen the amount that a typical household pays per year rise from £2,500 to £3,000.
However, Mr Hunt confirmed that support will now continue at the same level. It’ll save the average family £160 on their energy bills and cost the Treasury around £3bn. He also confirmed that the so-called “prepayment premium” – where customers who use energy prepayment metres pay more than those on direct debit – would be scrapped from July.
The move is expected to save about four million households £45 a year.
The chancellor announced a white paper is being published on disability benefits.
He also plans to abolish the work capability assessment while eligibility for the health top-up in universal credit will be passported via the personal independence payment benefit.
Hunt will also reboot the benefits system so that sick people who return to work part-time can continue claiming some sickness benefits.
He says there will be a new, voluntary employment scheme for disabled people where the government will spend up to £4,000 per person to help them find appropriate jobs and put in place the support they need. It’ll fund 50,000 places every single year, he says.
Income tax for carers
The amount of income tax relief available to foster carers and shared lives carers is being extended.
The threshold of income at which qualifying carers begin paying tax on care income will be increased to £18,140 per year plus £375 to £450 per person cared for per week over the next tax year.
Costly childcare has become a major burden on parents and experts have long claimed it’s one of the most important issues that the Government needs to tackle. So Mr Hunt said current free childcare provision will be expanded and extended to children aged as young as nine months, or when a mother’s maternity leave ends.
Under the current system, some eligible working parents with three-to-four-year-olds can claim up to 30 hours of free childcare per week for 38 weeks of the year (during school term time) with all entitled to at least 15 hours per week.
But Mr Hunt said all parents who work at least 16 hours per week will soon be able to claim 30 hours of childcare, for children aged between nine months and four. It’ll be introduced in stages.
From April 2024, parents of two-year-olds will be able to claim 15 hours per week.
In September 2024, parents of children from nine months old will be able to access the same childcare, with all children covered by the policy qualifying for 30 hours a week from September 2025.
The package is worth £6.5bn overall, Mr Hunt said, adding that he “doesn’t want any parent with a child under five to be prevented from working if they want to.”
Meanwhile, parents who claim universal credit will no longer have to claim back childcare costs, receiving the money up front instead.
|Starting from||Who’s eligible||What’s offered|
|April 2024||Working parents of two-year-old children||15 hours of free childcare|
|September 2024||Working parents of children aged between nine months and two years||15 hours of free childcare|
|September 2025||Working parents of children under five years old||30 hours of free childcare|
“Full expensing” for next three years
Jeremy Hunt announced a policy of “full expensing” for the next three years and with an intention to make it permanent. He explained:
“That means that every single pound a company invests in IT equipment, plant, or machinery can be deducted in full and immediately from taxable profits. It’s a corporation tax cut worth an average of £9 billion a year for every year it’s in place.”
Mr Hunt said the measure is expected to increase business investment.
Hunt wants the UK to be ‘Europe’s most dynamic enterprise economy’
The chancellor said the government would not rest until the UK is “Europe’s most dynamic enterprise economy”. He told MPs: “We already have lower levels of business taxation than France, Germany, Italy or Japan. But I want us to have the most pro-business, pro-enterprise tax regime anywhere. Even after the corporation tax rise this April, we will have the lowest headline rate in the G7”
He states that only 10% of companies will pay the full 25% rate. But even at 19% the corporation tax regime didn’t incentivise investment as effectively as countries with higher headline rates.
Mr Hunt also laid out measures the Government had already taken to encourage business investment, telling the Commons: “For larger businesses we have had the super deduction, introduced by the Prime Minister, which ends this month.
“For smaller businesses we have increased the Annual Investment Allowance to £1 million, meaning 99% of all businesses can deduct the full value of all their investment from that year’s taxable profits.”
What should I do now?
We’d recommend that you rework your cashflow forecast to take into account the changes and, if there are any areas of concern, you speak to your accountant for specific guidance.
Want to talk about what this means for you? Feel free to get in touch for a chat.