A Budget acts as the Chancellor’s chance to fix short-term problems and introduce a long-term plan for the UK economy, which Jeremy Hunt attempted on 15 March.
Quipped in the media as the ‘back to work’ Budget, Hunt’s announcement focused on ways to get people, well, back to work — as well as an announcement on energy support.
What did the Budget mean for you and your personal wealth?
A “brightened” fiscal outlook?
As usual, Hunt started his Budget statement with an overview of the Office for Budget Responsibility’s (OBR) Economic and Fiscal Outlook report.
The good news? According to the OBR, the UK will technically avoid a recession — defined as two successive quarters of negative growth — in 2023 (you’ll remember the Government watchdog saying in November we would have a recession this year).
The bad news? Regardless, the UK will still shrink by 0.2% in 2023. However, this is far better than the OBR’s November forecast, which pegged growth at -1.4%. The revised figures are primarily due to lower-than-expected energy prices and Government intervention.
Rapidly falling energy prices will also push down inflation faster than expected, the OBR said, which will dive from a peak of 11.1% in October 2022 to 2.9% by the end of 2023 and 0.9% in 2024.
However, yearly inflation will still be high for 2023 at 6.1%. Moreover, real household disposable income will fall by 5.7% over the 2022/23 and 2023/24 financial years, according to the OBR. Although this is 1.4 percentage points less than forecast in November, it would still be the largest two-year fall in incomes since records began in 1956-57.
Pension lifetime and annual allowances
As for the policy announcements, let’s start with the ‘rabbit out of the hat’: the pension lifetime allowance (LTA), which is — or was — the amount of money you can save into your pension until you begin paying tax on your contributions.
In the runup to the Budget, many commentators had speculated that Hunt would increase the LTA to allow people to save more money before paying tax charges as high as 55%.
Instead, he scrapped the LTA altogether, hoping this would encourage people — especially doctors — to continue working and not retire early.
In 2019/20, 42,530 individual breached their LTA. Were you one of them? If so, you don’t have to worry about breaching it again.
Unfortunately, Hunt did not extend the same level of generosity to the annual allowance. However, this will rise from £40,000 to £60,000, meaning that savers can save an extra £20,000 a year before having to pay tax of their contributions.
Don’t make enough to pay £40,000 into your pension a year and don’t see the relevance of the policy change? If you didn’t use all of your annual allowance for a particular tax year, you can bring it forward for up to three years.
Last week’s policy change means you might escape a tax charge after using your unused allowances!
Free childcare
In another shock announcement, Hunt said the Government would expand free childcare to parents of two-year-olds from April 2024 and then to parents of nine-month-olds from September 2025 to help people get back to work.
Child care in the UK is among the most expensive in the world, with the average full-time nursery fees for a child under two costing nearly £15,000 a year.
Energy support
From much pressure to provide extra support to household struggling with high energy bills, Hunt also announced the Government would keep the energy price guarantee where it is now for another three months rather than let it rise as originally planned.
The announcement means the scheme will continue to cap the average household’s energy bill at £2,500 a year until July rather than £3,000.
Businesses and individuals will also benefit from a freeze to fuel duty, which then-Chancellor Rishi Sunak cut by 5p last year. The duty was meant to rise in inflation this year.
Interested in how else the Spring Budget impacts your personal finances? Get in touch with us for a chat.