The economic outlook for 2023-24 is slightly less bleak now than it was in the latter half of last year.
But inflation has still not gone away, and family finances remain fragile, with a soaring cost of living, while support for energy bills drives government borrowing up still further. Strikes are threatening the railways and the NHS. Recession โ economic contraction, rather than steady recovery post covid crisis โ has only been narrowly avoided, although the chancellor assured the Commons at the beginning of his budget announcement that the UK will not enter a โtechnical recession.โ
But if the economy is not shrinking as much as was feared, it is hardly surging ahead. Mr Huntโs key priority may be to stimulate economic growth. Although all G7 economies were hit by Covid-19 and the Russian invasion of Ukraine, the UK is the only of these advanced economies not to have returned to its pre-pandemic level of output.
It is a challenging environment for any chancellor of the exchequer to deal with. So, what exactly did Jeremy Hunt announce in his lunchtime budget speech to parliament on Wednesday 15th?
Pensions โ a chance to work longer and save more
Pensions lifetime allowance โ currently ยฃ1.07million is to be abolished. The policy aims to stop people - particularly doctors - from reducing hours or retiring early owing to tax. Some doctors and consultants have reduced their hours or retired early from the NHS because they were in danger of breaching the tax-free pensions lifetime allowance, having calculated that continuing to work was counterproductive for their finances.
Hunt says that from 6th April 2023 he will increase the current pensions annual tax-free allowance from ยฃ40,000 to ยฃ60,000 and will also abolish the Lifetime Allowance - previously set at ยฃ1.07m.
In addition to this, the money purchase annual allowance, which is the amount a person who has already begun drawing on their pension can pay back into their retirement pot each year without incurring a tax charge, has been increased from its current level of ยฃ4,000 to ยฃ10,000 from April 2023.
Your pension can now work much harder to build your wealth โ contact us at Continuum to discuss how you can take advantage of this important concession.
The UK economy
Mr Hunt said improving global conditions and actions taken after Liz Truss's disastrous mini-Budget meant the UK is now expected to avoid outright recession, although GDP is now expected to contract by 0.2% in 2023, down from a gloomier prediction of 1.4% in November.
After that, the economy is expected to grow every year to 2027. Unemployment is also not expected to rise by more than one percentage point, while record inflation is expected to come down dramatically โ down to 2.9% by the end of 2023, meeting Rishi Sunak's target.
Prices will still rise in the shops, but not as fast as they have been. There will still be large increases to broadband and mobile bills for millions of people in April, and many homeowners will face higher mortgage demands.
So the chancellor believes that things are getting better. What will he be doing to help them along?
It looks as though he is avoiding the simple solution of cutting taxes favoured by his predecessor, Kwasi Kwarteng โ and looking at stimulating the economy with a focus on getting people not in the workforce or thinking of leaving back to work.
Tax โ good news for small businesses?
Mr Hunt said before the budget speech that he was unlikely to be able to make "significant" tax cuts, pointing to the huge post-covid deficits. There are no changes to personal taxation, but despite considerable opposition the chancellor is going ahead with the planned rise in corporation tax from 6 April.
The shake-up will see businesses pay more corporation tax, which will climb from 19% to 25% bringing in an extra ยฃ18 billion for the Treasury.
However, the tax rise will only fully impact businesses with profits of more than ยฃ250,000. Companies with profits of between ยฃ50,000 and ยฃ250,000 will get marginal relief.
For those with profits of less than ยฃ50,000, there will be no change. These businesses will continue to pay corporation tax at 19%.
Small businesses may be able to breathe a sigh of relief.
There are also some new concessions. Small or medium-sized businesses will be able to claim a credit worth ยฃ27 for every ยฃ100 they spend if they spend 40% or more of their total expenditure on Research and Development.
Smaller businesses can take advantage of a rise in Annual Investment Allowance to ยฃ1m, meaning most can deduct the full value of all their investment from that yearโs taxable profits.
He says it means that every single pound a company invests in IT equipment, plant or machinery can be deducted in full and immediately from taxable profits.
If you run a small business, there could be ways to reduce your tax bill considerably. Call us at Continuum to examine the potential for freeing up cashflow.
Benefits โ getting people back into the workforce?
The chancellor has already mentioned a need to encourage more older people โ who may have a wealth of skills and experience โ back into productive work.
Measures are not finalised as yet, but a white paper is being published on disability benefits, including plans to abolish the work capability assessment and to separate benefits entitlement from an individualโs ability to work.
The aim seems to be to help disabled benefit claimants be able to work without losing financial support.
He also announced a voluntary employment scheme for disabled people and โReturnershipsโ to operate alongside skills boot camps and sector-based work academies targeted at the over 50s who want to return to work.
The government willย increase the number of 50+ Universal Credit claimants who receive mid-life MOTs from 8,000 to 40,000 a year. These look at a person's finances, skills and health, to prepare for their retirement and build financial resilience.
Younger people taking a career break to start a family will also find it easier to go back to work, with 30 hours of free weekly childcare being extended to cover children below the age of three. It will eventually cover all children from the age of nine months, but will only apply to households where both parents are working.
Free childcare for working parents in England has been expanded to cover all children under five, as the Chancellor looks to get more parents back to work. The government's independent forecaster says the move could allow some 60,000 more parents of young children to enter employment.
Parents on Universal Credit will now receive up to ยฃ951 for one child and ยฃ1,630 for two children per month which will now be paid upfront.
There will also be a boost for childcare suppliers, with incentive payments of ยฃ600 for childminders joining the profession and an increase funding to nurseries rising to ยฃ288m next year - an average of 30% increase in the two-year-old rate, and a reduction in the minimum staff to child ratio.
Older children might benefit from government funding for schools and local authorities to increase supply of wraparound care so all parents of school-age children can drop their children off between 8am and 6pm.
Going back to work could mean a big impact on your tax position. Call the Continuum team to discuss whether you could be better off.
Energy bills support
The Governmentโs Energy Price Guarantee, which subsidises household energy costs above a certain threshold, was previously scheduled to become less generous from April 1.
Support with energy bills will continue for another three months in England, Wales and Scotland, reversing a plan to make it less generous. Under the Energy Price Guarantee, the government has been limiting energy bills for a typical household to ยฃ2,500 a year, plus a ยฃ400 winter discount. The guarantee will continue at the same level until July, by which time the price of energy should have dropped.
As trailed in advance, a planned rise in fuel duty this April has been delayed again. Hiking the levy in line with inflation would have added 7p to the price of a litre of fuel.
If your home finances are stretched, there could be ways to improve them. Contact us at Continuum for some free initial advice.
What will it all mean for your finances?
The budget has included very few surprises and the impact on your finances might not seem to be too dramatic. However, any change in taxation and allowances could have a long term effect on your financial plans.
There are already some changes to taxes planned for the new tax year which starts next month, and the budget might present some new ways to reduce your tax burden โ particularly by taking full advantage of the changes to pension allowances.
To make sure your finances can recover as well as the UK economy, call us at Continuum, to work out a personal budget of your own.
The information contained in this article is based on the opinion of Continuum and does not constitute financial advice or a recommendation to suitable investment, retirement or savings strategy, you should seek independent financial advice before embarking on any course of action.
The Financial Conduct Authority does not regulate taxation advice.
A pension is a long term investment, the fund value can go down as well as up and this can impact the level of pension benefits available
Levels, bases and reliefs from taxation are subject to individual circumstances and may be subject to change
https://www.telegraph.co.uk/business/2023/03/15/key-points-budget-2023-jeremy-hunt-summary/
https://www.thesun.co.uk/money/news-money/21707377/corporation-tax-will-be-hiked-to-25-per-cent/
https://www.theguardian.com/uk-news/2023/mar/15/budget-2023-key-points
https://www.manchestereveningnews.co.uk/news/uk-news/extended-free-childcare-under-5s-26478660.amp
