On Wednesday lunchtime, Jeremy Hunt will rise in the Commons and present his first spring budget. The announcements he makes will affect our household finances in many ways: from how much we pay at the gas pump to when we can afford to retire.
Financial commentators predict this will be one of the most moderate budgets we have seen in some time. After all, the Chancellor may feel he has little room for freebies and already has enough on his plate without launching major new tax and spending reviews.
But budget statements often defy expectations. No one foresaw former Chancellor Kwasi Kwarteng’s so-called mini-budget last year, which rattled debt markets and pension funds. The shockwaves are still being felt by millions of homeowners facing higher mortgage costs.
So it pays to keep an eye out for what Jeremy Hunt is exposing this week. In the meantime, here are Wealth & Personal Finance’s predictions of what might be in the Chancellor’s red box – and how you can protect your finances against whatever comes your way.
Increase in pensions to encourage over 50s to return to work
Reintegrating those over 50 who have taken early retirement into the labor market is a key priority for the Chancellor.
Tip box: What Chancellor Jeremy Hunt will look like as he prepares to present the budget
An estimated 3.6 million people between the ages of 50 and 64 are not working. Hunt thinks encouraging them to return will help spur economic growth. A number of pension providers have also warned that pre-retirees could run out of cash prematurely.
One easy fix the Chancellor could announce is a change to pension rules to make it easier for people returning to work to add to their savings.
Currently, once someone has dipped into their pension, the amount they can then pay in and get tax relief drops from £40,000 to £4,000 a year. This acts as a huge deterrent to making significant pension contributions and could deter people from returning to work.
Major financial firms and trade associations have urged the Chancellor to raise this allowance to £10,000. Canada Life estimates the move would cost the Treasury just £75m a year but bring in an extra £400m in tax revenue.
Hunt could also tackle two other so-called retirement pitfalls, which have been blamed for driving doctors and other professionals out of the workplace.
The lifetime allowance on tax-free retirement savings could be increased from its current level of £1,073,100, where it is currently expected to remain until 2026. Retirement savings above this sum is imposed in a punitive manner, which makes it financially unsustainable for some people reaching this level. to stay at work.
The annual allowance that limits the amount you can save tax-free in a year could also increase. It is currently at £40,000 and has been since 2014.
More help with energy costs
It is very likely that the Chancellor will ensure that average energy bills do not rise in April, by extending the energy price guarantee for a few more months. Energy bills are expected to average £3,000 a year. However, the Chancellor is expected to retain the existing level of support, which would keep the bills at £2,500 on average.
In his autumn statement in November, the chancellor said he was looking at social tariffs, which would deliver cheaper energy bills to the poorest households. While he’s unlikely to feature them before 2024, he might offer an update on how they look.
Laura Suter, personal finance manager at investment platform AJ Bell, said: “Some campaigners argue that universal support for energy should be dropped and more money offered to those on the lowest incomes.”
“If Jeremy Hunt chose to remove the Universal Energy Price Guarantee and increase cost of living support, far more support per household could be offered to the poorest in society who are struggling the most. with their bills. But it lacks the mainstream appeal and winning votes to expand energy support for all.
Lower prices at the gas pump
The fuel tax is supposed to increase every year based on the retail price index (RPI) inflation rate. But, in reality, it has been frozen by successive chancellors for the past 12 years. In fact, this time last year, then-Chancellor Rishi Sunak opted to cut fuel tax – by 5p per litre. If Jeremy Hunt went ahead with the planned increase it would add another 12p to the cost of a liter of petrol.
However, he is unlikely to risk it. Laith Khalaf, head of investment analysis at AJ Bell, says: “A fuel tax freeze again seems all but inevitable to prevent motorists from facing skyrocketing transport costs, which could stall the workings of the economy.”
Postponement of the retirement age
The Chancellor promised a review of the legal retirement age. In his fall statement, he said it would be released early in the new year – and there’s a chance he could fit it into the spring budget.
The current plan is to raise the legal retirement age to 67 between 2026 and 2028, then to 68 between 2044 and 2046. But this could be accelerated. The move would save the Treasury billions of pounds, but would inevitably disappoint or anger those affected.
If the increase to age 68 were advanced seven years to 2037-39, for example, anyone born on or after April 6, 1971 would be affected.
Steven Cameron, director of pensions at insurer Aegon, adds: “A raise in the retirement age to 68 could also prompt the government to raise the earliest age at which pensions can be accessed to 58. It is already going from 55 to 57 in 2028, creating massive complexities.
The review is a reminder that there is no guarantee that today’s young workers will receive what current retirees are enjoying. It’s worth building up a good nest egg in case state benefits are affected in the future.
More affordable daycare
The cost of childcare in the UK has risen sharply and is among the most expensive in the world. One in four parents who pay for childcare say it costs more than 75% of their take home pay, says the charity Pregnant Then Screwed. Some leave the labor market or reduce their hours because it is too expensive.
The Chancellor could make announcements to help parents, such as increasing childcare support for low-income parents.
The maximum amount parents on Universal Credit can claim for childcare is £646 a month and has not increased since 2006.
The average cost of a full-time nursery place for a child under two is around £1,200 a month, according to charity Coram.
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