In his Spring Statement, the Chancellor presented his “back to work” budget with measures aimed to encourage the 8 million or so economically inactive into work.
The Office for Budget Responsibility published a fresh forecast, revealing that inflation is expected to drop sharply throughout the year, falling to 2.9% by the end of 2023. Things aren’t as bleak as forecast last November mainly due to falling energy prices and higher tax revenues. This will reduce Government borrowing this year and next by £30bn less than expected. However, living standards are also expected to fall at their greatest since records began, falling 6% cumulatively over the next two years. A technical recession is projected to be avoided, as GDP is predicted to drop only 0.2% throughout this year, though GDP growth will be weaker than expected from 2025 onwards.
As expected, there were no further changes to tax rates, bands, and allowances. These will be as announced in the Autumn Statement last November.
The Chancellor revealed a range of policies to tackle the UK’s labour shortage, attempting to pull thousands of people back into the workforce. The measures included reforms to support disabled people, those with long-term health conditions, parents, the over 50s and people on Universal Credit to return to the workforce. Measures include the extension of free child care of 30 hours per week to parents with children aged from nine months to three years, though this will only apply to households where both parents are working.
There will also be increased sanctions enforcement, along with changes to sickness benefits, disability support, doctor sick notes and funding for occupational health consultants.
Pensions
The biggest changes announced (at least from our point of view) were on pensions tax and legislation.
The Lifetime Allowance is no more
We haven’t had any material changes to pensions for some 5 years or more. However, this changed today with the abolition of the lifetime allowance tax charge from 6 April 2023. Many different payments from pensions refer to the lifetime allowance in their definition, with that in mind the Government have stated that the lifetime allowance will be completely abolished from 6 April 2024, giving time to work the changes through. This essentially removes the cap on lifetime savings, opening up the opportunity for further funding, even if the LTA had previously been fully used. From 6 April 2023:
- The maximum that clients can claim as Pension Commencement Lump Sums will be capped at 25% of current LTA (£268,275)
- While the various forms of LTA protection will be redundant with regards to the LTA charge, they may still be relevant for determining tax free cash. Subject to certain conditions, anyone with a tax-free cash entitlement in excess of £268,275 because of their LTA protection will retain their rights to this higher amount. They will also be able to restart pension funding from 6 April 2023, without losing their existing protection. Those with scheme-specific tax free cash in excess of 25%, or with stand-alone lump sum rights, will also keep this entitlement.
- For serious ill-health lump sums, defined benefits lump sum death benefit and uncrystallised funds lump sum death benefits, currently where the amount paid is above the available LTA, its taxed at 55%, but from 6 April 2023 the amount that would have been taxed at 55% will instead be taxed at the individual’s marginal rate.
The Annual Allowance
The Annual Allowance increases from £40,000 to £60,000 for 2023/24.
The Money Purchase Annual Allowance (MPAA) increases from £4,000 to £10,000 for 2023/24.
The tapered annual allowance becomes a bit more generous. The adjusted income level for the tapered AA increases from £240,000 to £260,000 for 2023/24 and the minimum tapered Annual Allowance will be £10,000 for those with income of £360,000 and above. The threshold income for tapering purposes remains at £200,000.
This may be particularly attractive to those that will be paying additional rate tax on their income for the first time once the additional rate threshold drops from £150,000 to £125,140 in 2023/24.
Nuclear and green energy
Nuclear energy will now be classed as environmentally sustainable, while the government will create a body to oversee new nuclear power stations across the UK, as well as launching a competition for the design of small modular reactors.
The government will also issue a further £10bn in green gilts, while £20bn has been pledged to support carbon capture projects.
Energy Support Extension
The government’s Energy Price Guarantee has been extended for an additional three months, which will keep the energy cap at its current £2,500 level, rather than rise to £3,000 from April.
Hunt said energy bills were set to fall from July onwards and the temporary extension to the support scheme “will bridge the gap and ease the pressure on families, while also helping lower inflation too”.
Annual investment Allowance increased
The annual investment allowance has been increased to £1m for small businesses. This will now allow 99% of all businesses to deduct the full value of their investment from each year’s taxable profits.
‘Full expensing’ has also been introduced for the next three years, so all money invested in IT equipment by a small business can be deducted in full from taxable profits. Hunt also confirmed corporation tax will rise from 19% to 25% in April.
Reforms for start-ups
Major reforms to the financing system of start-ups will be revealed in the Autumn Statement later this year. These would aim to push investment from pension funds and make the London Stock Exchange a more attractive place to list. The chancellor also revealed two areas of policy reform in medicine and artificial intelligence, which received various reforms to boost investment and innovation in the sectors.
Childcare Benefit
Childcare support will come up-front. The limit on maximum support will rise after being frozen at £646 a month for years.
The 30 hours’ free childcare per week for 38 weeks support will be extended to one- and two-year-olds from September 2024.
