The Spring Budget 2023 – What You Need to Know

This article explains the key points from the Spring Budget, delivered on Wednesday.  Find out what’s changing and what it could mean for you.

Published: 16th March 2023

 
Chancellor Jeremy Hunt delivered what he called a ‘budget for growth’ yesterday, with short-term measures to support people through the current cost-of-living crisis, and a longer-term plan to grow the economy.
 

Key Points at a Glance

 
The main focus is getting people into work, to fill the million vacancies across the UK and boost the economy:
Free childcare – to help young parents get back to work
Benefits – to help people with disabilities or health conditions find or stay in work
Pensions – removal of lifetime allowance limit, to encourage people to keep working and keep saving
 
Other measures:
Energy bills – support package extended until end of June
Duties – Alcohol and tobacco tax increases, but fuel duty frozen
Business – Corporation tax rises to 25%, but there will be deductions for investment in future growth
Taxman

The UK Economy

 
Hunt’s announcement came against a backdrop of mass industrial action yesterday, involving hundreds of thousands of workers, including teachers, university lecturers, junior doctors, civil servants and rail staff striking around the country over pay, job security, working conditions and pensions. (Notably there was no announcement in this Budget of extra money for public sector pay.)
 
According to the Office for Budget Responsibilty (OBR), the UK economy will shrink slightly, but avoid recession this year. Inflation is expected to decrease from 10.7% in the last quarter of 2022 to just under 3% by the end of the year. However, the OBR forecasts that real household disposable income will fall by 5.7% over the next two years, which is the biggest drop in living standards since records began in the 1950’s, although the decline will not be as bad as previously forecast.

Hunt believes a shortage of workers is holding back economic growth, with a million vacancies across the UK. So, the main focus of his budget is getting people into work, with changes to childcare, benefits and pensions.

 

Childcare

 
UK childcare costs are amongst the highest in the world, reaching an average of £14,000 annually. The government has pledged a multi-billion pound package to expand free childcare, in order to encourage young parents back into the workplace.
 
Working parents in England with children over 9 months will be offered free childcare for 30 hours/week. But the measures will be staggered to ensure there are sufficient places at nurseries and childminders, so will not be implemented fully until September 2025. Parents will save £6,500 per child in childcare costs, according to the government.
(There will be equivalent funding for the other regions in the UK.)
 
In addition, from September, schools will receive funding to provide wrap-around childcare outside school hours, covering 8am-6pm. The chancellor also pledged to increase funding for nurseries and give those on Universal Credit more help with childcare.
 
As well as making a big difference to young families, the measures are expected to help businesses that risk losing valuable employees when they start a family.

 

Pensions

 
The chancellor scrapped the £1m pensions lifetime allowance – this was a cap on the amount people could save for their pension before paying extra tax. The change means if you keep working, you can keep saving. It is hoped this will encourage high earners, particularly senior doctors, to stay in work longer or return from retirement. (Currently 80% of NHS doctors receive a tax charge on their pensions). However, critics claim this is a budget for the rich, allowing already wealthy people to save more for their pensions.

The government also increased the annual tax-free allowance on pensions from £40,000 to £60,000.

 

Benefits

 
The government have brought in various benefits to help people find or stay in work, including:
– A new Universal Support programme designed to help disabled people find work.
– Funding support in the workplace for people who would otherwise be forced to leave work due to health conditions.
– Returnership” – a new apprenticeship for those aged 50+ who want to return to work.
However, there will also be Universal Credit sanctions for jobseekers who refuse to take “appropriate” work. Martin Lewis (MSE) commented, it will be “tougher for people who don’t work and who government thinks can”.
 
The OBR calculate that the chancellor’s policies on childcare, pensions and benefits could bring in about 110,000 people to the UK workforce.
 

Other measures unveiled by Mr Hunt:
 

Energy Bills

 
Soaring energy bills have been crippling household finances. So the Energy price guarantee (EPG) has been extended until the end of June. It caps the unit price of electricity, keeping the average household bill at £2,500. (It had been due to rise to £3,000 from April.)
 
People using prepayment meters used to be charged more for their gas and electricity than those paying by direct debit. But prepayment charges will be brought in line from July, saving households £45 a year on their energy bills.

 

Duties

 
Alcohol: Tax on alcohol will rise in line with current inflation (+ 10.1% from August). However, the duty on draught drinks served in pubs will be frozen, to help “the great British pub”, said Hunt.
Tobacco: Tobacco products have seen an immediate tax rise of about 12%, with the cost of an average pack of 20 cigarettes increasing to £14.39.
Fuel: Fuel duty remains frozen.

 

Business

 
Corporation tax on profits over £250,000 is still set to rise from 19% to 25% in April. But to soften the blow, there will be tax deductions for businesses investing in their future growth e.g. Research & Development, IT, equipment, machinery etc.
 
Immigration rules have been relaxed to help the construction industry. (Other sectors, particularly hospitality, were disappointed this has not also applied to them).
 
Twelve new investment zones will be eligible for £80m funding to boost business. Areas include North East, South Yorkshire, West Yorkshire, Greater Manchester, West Midlands, East Midlands, Teesside, and Liverpool and at least one zone in each of Scotland, Wales and Northern Ireland.
 

Environment

 
Businesses will be given tax relief for energy efficient measures, in a bid to reduce energy use by 15%.
 
The government is planning for a quarter of UK electricity to be nuclear-powered by 2050. As low carbon energy, nuclear power will be classed as “environmentally sustainable” (along with other renewables wind and solar), to encourage investment in the sector. However this has raised strong criticism and concern about nuclear waste.
 

Defence

 
£11bn will be added to the UK defence budget over the next five years, bringing it to 2.25% of GDP by 2025.

 

 

Budget 2023 calculator: Will you be richer or poorer?

Use this handy budget calculator to see how you have been affected by the chancellor’s tax and spending announcements.
 

 
 
Sources:
Sky News: Budget 2023: UK economy will avoid recession in 2023 and inflation set to plummet, says chancellor
BBC News: Budget 2023: Jeremy Hunt insists plans will get people back to work
The Independent – Money: ‘I got a name check!’ Money saving expert Martin Lewis responds to Budget 2023
 
 
 

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