What you need to know about the Government’s spending and taxation plans.
The first full Budget from Chancellor Jeremy Hunt was announced on Wednesday 15 March 2023. It’s actually the first proper Budget in 17 months, with only “mini-Budgets” and “fiscal statements” happening in that time.
Branded a “back to work” Budget, the Government wanted to encourage more people to return to the workplace with financial incentives.
In terms of support for the cost of living crisis, there wasn’t a huge amount we didn’t already know about.
Here are the policies that could make a difference to you and your finances.
Inflation & Recession
The Chancellor announced that the Office for Budget Responsibility (OBR) predicts inflation will drop to 2.9% by the end of 2023. We’ll see next week how this is interpreted by the Bank of England when it sets the base interest rate.
He also said the UK would not enter a “technical recession” in 2023, though the economy will still shrink this year.
A quick reminder that when “typical” bill amounts are mentioned it’s based on a year, and based on a household with average use. If you use more, that amount will be higher, and if you use less it’ll be lower.
Energy Price Guarantee hike delayed
As has been predicted for a few weeks now, there’s been a U-turn on energy policy. The increase to the Energy Price Guarantee (EPG) from its current rate of £2,500 to £3,000 a year (based on average usage) has been delayed from 1 April until July 2023.
This doesn’t mean you’ll now avoid a £500 (on average) increase. Since we’re talking about a single quarter rather than a year, it means the average household will actually escape an extra £160 (according to the Treasury) over those three months.
And, it also doesn’t mean your bills will stay the same. There will still be some changes to the prices you pay, with standing charges likely to increase (meaning you’ll pay more even if you use less energy).
And the £67 a month discount that has been in place since 1 October will still end on 31 March. So that’ll be back on your bills.
The good news is that from 1 July the energy price cap is expected to be lower than the EPG, so we’ll see bills drop a little from then.
Prepayment meter premium removed
The extra charges for using a prepayment meter over a credit meter (one that is paid by direct debit) will be removed from July. This could be worth around £45 (though that’ll vary by energy use) to more than 4m homes.
Heat Network support
A new rate will be set that means those who use the UK Heat Network don’t pay disproportionately higher energy bills compared to those covered by the Energy Price Guarantee.
Fuel duty frozen
The 11p per litre increase planned for April will not go ahead and current rates will be frozen for 12 months.
Beer duty frozen
Duty on draft products will also be frozen at 11p less than the tax on beers in supermarkets. However an already announced increase to alcohol duty will happen in August.
Tobacco duty increase going ahead
Smokers will face an increase of close to 15%, based on RPI plus 2%.
Help to Save to be extended
The government saving scheme where those on low incomes also receive Universal Credit or tax credits can get a 50% boost to savings was due to end in September this year. It’ll now continue until April 2025.
No change to Lifetime ISA
Though there had been a lot of campaigning to change how the LISA works, it’ll stay the same. This means you’ll pay an effective 6.25% penalty to withdraw money for anything other than buying your first home or retirement. The eligible property limit will also remain at £450,000.
These announcements are all geared towards making it easier and more cost-effective for parents to return to work
Free childcare boosted by 30 hours
Parents in England of children aged between 9 months and two years old will be able to claim 30 hours a week of free childcare (as long as both parents work at least 16 hours a week).
This won’t start for at least a year with a staggered start date for the extension of this scheme, which currently covers three and four-year-olds.
- April 2024 – Two-year-olds will get 15 hours free care each week
- September 2024 – all children between 9 months and four years old will get 15 hours
- September 2025 – all parents with kids between 9 months and four years old will have access to 30 free hours a week
There will also be additional funding to improve the current staff-to-children ratio and pay carers and childminders more.
Childcare element of Universal Credit to be paid upfront
Those on UC who can get help with childcare costs will no longer have to claim the money back – a huge barrier to those eligible from actually claiming the benefit. It’s worth up to £951 a month for one child and up to £1,630 for two.
Funding for before and after school club
By September 2026 there will be the provision for all parents to leave their children at school between 8am and 6pm.
These changes are also designed to encourage people to work longer, by withdrawing the penalties some high earners faced when it came to pension contributions.
Annual allowances increased
The amount you can add to a pension in a year before additional taxes apply will increase. The annual allowance will jump from £40,000 (or your annual earnings if lower) to £60,000.
Lifetime allowance abolished
Meanwhile the lifetime allowance was expected to go from £1.07m to £1.8m. Instead, it’s been abolished. However, the tax-free amount you can take, currently 25% of your total, will be capped at £268,275.
Money Purchase allowance increased
In addition, the Money Purchase Allowance – the amount you can add to your pension pot each year after retiring and still get tax relief – will increase from £4,000 to £10,000.