Chancellor Jeremy Hunt announced changes to pensions, energy bills, childcare and more in today’s Spring Budget.
The main announcement was the abolition of the lifetime allowance from pensions, with the aim of getting more people to work for longer.
This means that savers will not be subject to tax penalties on the money they set aside for retirement, regardless of the size of their kitty. Before today, they would be taxed if their pot exceeded £1.07million.
Hunt has also boosted free childcare and extended the energy price guarantee for three months, limiting the average household’s energy bills to £2,500 until August.
We explain all the key announcements and what they mean for your finances.
Back-to-work budget: Chancellor Jeremy Hunt unveiled measures designed to keep people in work
Lifetime retirement allowance abolished
Jeremy Hunt has given high-income savers a huge boost by scrapping the Lifetime Retirement Allowance.
The limit capped the amount people can have in their retirement kitty without incurring tax penalties when they withdraw it.
It was meant to remain at £1.07m until 2026 – but now the limit has been removed completely.
The government is trying to ensure that people stay in employment, especially doctors and civil servants who are leaving early in large numbers.
This means that high-income retirees will no longer pay tax on the retirement savings set aside throughout their lives.
> What the changes to the lifetime allowance and annual allowance mean for you
Annual increase in retirement allowance
In addition, the annual retirement allowance has been increased by £20,000 from £40,000 to £60,000, an increase of 50%.
The annual allowance is the lump sum that people can contribute to their pension each year and receive tax relief. It includes your contributions, your employer’s contributions and tax relief.
The rules are more complicated for high earners, whose annual allowance is “reduced”.
> How annual allocation changes will work
Training for older workers
To encourage over-50s to get back into the workforce, Hunt is offering a new internship-style program he’s dubbed “returns.”
He said it would train over-50s for new roles in sectors where there are shortages, such as technology.
The government hopes this will spur pre-retirees back to work to fill shortages it says are holding back economic growth.
Energy price guarantee extended until end of June
The government has extended the energy price guarantee for three months. This means typical household energy bills will be capped at £2,500 until the end of June.
According to the Treasury, this will equate to a £160 reduction in energy bills for households with a typical level of energy consumption, on top of the measures already in place.
The price cap will then increase to £3,000 from July. Wholesale gas and electricity prices have been falling steadily since December 2022, but this decline has yet to trickle down to energy bills. However, owners can expect them to drop later this year.
It should be noted that although the warranty has been extended, the £400 winter discount that households have received since October has not been extended and will end on April 1.
There was also welcome news for those who use prepaid electricity meters. Hunt confirmed they would no longer pay higher than direct debit tariffs for their energy, ending what he called the “poorest household premium”.
> Will your energy bills go down or up? What the price guarantee freeze means
Boost for working parents: The government has pledged to pay childcare costs for children under three for up to 30 hours a week
Childcare costs for children under three years old
After much talk about the cost of childcare and its impact on keeping new parents out of work, the Chancellor announced free childcare for under-threes as one of his measures back to work. However, the measures are being introduced gradually so as not to overwhelm providers with demand.
The government has pledged to pay 30 hours of free childcare for children over nine months, in addition to the existing system for three-year-olds.
The announcement is expected to cost the government around £4billion in additional funding.
Additionally, Hunt increased the hourly rate paid to child care providers by the government and increased minimum child ratios from 1 to 5 to 1 to 4.
Additionally, to encourage more people to join the childcare profession, new entrants will receive incentive payments of £600, rising to £1,200 for those joining an agency.
In a further move to support parents, those on Universal Credit will see their childcare allowances increased and they will be paid upfront.
> Will you get 30 hours of free childcare? Explanation of the budget reorganization
Fuel tax freeze
The government has chosen to freeze fuel duty for another year, keeping in place the 5p reduction introduced last year, due to high prices. The move saves the average driver £100 over the next year.
It is understood the Treasury was previously considering raising petrol prices by around 11 pence per liter later this year.
The cost to the government of freezing it at the current level is estimated to be around £6billion.
> Fuel tax frozen for the 13th year: how much gasoline and diesel is taxed
Beverage tax: The Wine and Spirit Association says today’s hike is the ‘biggest wine tax increase in the past 50 years’
Alcohol tax increase
Alcohol tax will rise in line with retail price index inflation from August, and a new regime where drinks are taxed according to their alcohol content also comes into effect.
The increases were announced in 2021, but implementation has been pushed back six months to August 2023. The government has now confirmed there will be no further delays.
This is the largest increase in wine taxes in 50 years, according to the Wine and Spirit Trade Association.
However, Hunt said that from August 1 the tax on draft drinks in pubs will be up to 11 pence lower than the cost in supermarkets.
> Congratulations Jeremy! ‘Brexit pub guarantee’ cuts tax on pints
Pothole fund to fix UK roads
In a victory for the Daily Mail’s Potholes campaign, the Chancellor announced an additional £200million fund to repair Britain’s craters. The commitment means around four million more holes will be filled.
The money represents an increase of nearly a fifth of annual funds to repair crumbling rural and local roads, and will be disbursed to councils in England in the coming weeks.
As the money is intended for town halls, this means that residential streets, country roads and minor roads B and C should benefit.
Business tax breaks: Although Hunt ended the “super-deduction” scheme, he introduced 100% capital spending for businesses over the next three years.
Increase in corporate tax and tax benefits for companies
Corporation tax for businesses will rise further to 25% from 19% from April, despite significant opposition from Tory backbenchers.
But Hunt says new tax breaks for businesses will cushion the blow, largely in the form of full capital outlays.
Rishi Sunak’s “super-deduction” program is coming to an end this month. The scheme allowed certain companies to deduct up to 130% of the cost of pre-tax profits and a special allowance of 50% for the first year which allows you to deduct 50% of the cost of your pre-tax profits.
Now the government has introduced full capital spending for businesses for the next three years, with the intention of making it permanent as soon as it is “responsible to do so”.
This means that any money a business invests in IT equipment, plant or machinery can be “fully and immediately” deducted from taxable profit.
The government says this is a saving of £9billion a year for businesses and that it should increase business investment by 3% a year.
And to boost small and medium-sized innovation companies, they will be able to claim £27 of credit for every £100 spent, if they spend 40% or more of their total spend on research and development.
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