The Spring Budget 2023 was billed as a set of growth announcements by Chancellor, Jeremy Hunt, with a focus on getting the UK back to work. Set against an environment of high inflation, a cost of living crisis, and tight public finances, the question were:
How could the Chancellor promote growth given he has so little fiscal room for manoeuvre?
What could he do to actually entice people, especially the over 50's, back to work?
The severity of the UK's economic circumstances was highlighted by the Office for Budget Responsibility (OBR) warning that the country's borrowing is running at unsustainably high levels, requiring less spending, more taxation, or both to rectify the situation. Against this backdrop, the main thrust of Hunt's announcements was on improving pension allowances and better access to childcare.
In essence it was a steady budget that didn't rock the boat. If OBR projections prove accurate then the UK is set to avoid recession in 2023, and there will also be a significant reduction in inflation down to 2.9% by the end of the year. As with all fiscal announcements, the devil is in the detail of the white paper that follows it, which we uncover in this blog post.
The Spring Budget policy announcements covered the following areas:
The energy price cap guarantee will remain at £2,500 for the next 3 months. It had been due to rise to £3,000 in April and this will now delay that increase until July 2023. Of note, wholesale energy prices have dropped by around 50% since October 2022.
A planned increase of 11p in fuel duty this year has been cancelled, meaning the 5p cut introduced in the Spring Budget 2022 remains in place for the next 12 months. According to the Spectator, this will save the average motorist £100.
The Pension Annual Tax-free Allowance will increase from £40,000 to £60,000 . If your income exceeds £260,000 then your annual savings allowance is tapered. Maximising the increased annual allowance arguably therefore requires either, a substantial amount of disposal income, or significant savings that can be locked away in a pension.
Where you have already accessed your pension pot then your annual savings allowance, known in this case as the Money Purchase Annual Allowance, will increase from £4,000 to £10,000.
The minimum Tapered Annual Allowance (TAA) will increase from £4,000 to £10,000, The TAA is an allowance that impacts you, potentially, if you're a higher earner. It works by reducing your annual allowance if your total income in a year exceeds both a 'threshold income' of £200,000 and you have an 'adjusted income' above £240,000. Of note, the adjusted income level is set to increase to £260,000.
Threshold income is in broad terms taxable income. Adjusted income on the other hand is generally defined as taxable income, plus employer and employee pension contributions. If the tapered AA applies to you then your AA is reduced by 50p for every £1 over the adjusted income threshold, down to the minimum level, currently set at £4,000.
As per the above, this base adjusted income level will rise by £6,000, to £10,000. All of the above changes will commence from 6 April 2023.
The Pension Lifetime Allowance which currently stands at £1.07m will be abolished. However, the maximum amount that you can withdraw from your pension, tax free, will be frozen at £268,275. For context, that's equivalent to just 25% of the current lifetime allowance.
If you withdraw money above this amount then you'll be taxed on it at your marginal rate. In other words, whilst you can save more into a pension, the tax you pay will effectively be deferred and you will still pay tax on the additional savings at a later date when withdrawn. This policy raises questions as to what happens in drawdown.
If parents have children under the age of 3, and they are in work, then they will benefit from 30 hours of free childcare for each of their children over the age of 9 months. The Chancellor claimed that this will reduce childcare costs by 60%, and encourage more parents back into work.
This policy is being staged in terms of introduction to children of higher ages due to the limited availability of childcare places in nurseries in the UK. That in itself will be a likely concern to many parents and could impact on their ability to return to work. According to MoneyWeek only 57% of local authorities have enough childcare places available for children under two, down from 72% in 2021.
The phasing will work as follows:
Also, more funding will be made available for schools to provide wraparound care for school-age children. There will be incentive payments of £600 for childminders who join the profession. Finally, there will be an increase in the funding to nurseries of £204 million from this September. This will then increase by 30% to £288 million next year.
The starting rate for savings income will be frozen at £5,000 for the 2023/24 tax year. It will then increase in line with the CPI measure of inflation thereafter. Also, annual ISA limits will remain at £20,000 for 2023/24, and again, this will increase in line with CPI after that tax year.
| Type of ISA | Annual limit for 2023/24 |
| Cash ISA | £20,000 |
| Stocks and shares ISA | £20,000 |
| Flexible ISA | £20,000 |
| Innovative finance ISA | £20,000 |
| Lifetime ISA | £4,000 |
| Junior ISA | £9,000 |
Alcohol duty will remain frozen until August 2023, and then increase in line with the RPI measure of inflation.
The headline rate of corporation tax will still rise to 25% per the table below (as previously announced). Back bench disquiet over the policy, meant there were rumours it could be scrapped. However, the Chancellor stated only 10% of companies will pay the full 25% rate. Instead Hunt's focus turned to investment reliefs.
| Profits | Rate of corporation tax |
|
Small company rate ≤£50,000 |
19% |
|
Marginal rate >£50,000 - £250,000 |
20% - 24% (26.5% effective rate) |
|
Main rate >£250,000 (applies to all profits, even those below this level) |
25% |
Whilst the super deduction comes to an end from 31 March 2023, it will be replaced by full capital expensing for the next 3 years. This comes at an estimated cost of £9bn to the Treasury and the aim is to make it permanent in legislation, where feasible.
This policy means businesses can deduct 100% of their spending on investment in qualifying brand new IT equipment, and plant and machinery from taxable profits straight away, as opposed to over several years. The assets have to be new, and the legislation excludes leases and cars. If you invest in used assets then the annual investment allowance threshold of £1m applies.
The legislation comes into effect from 1 April 2023 and is set to end on 31 March 2026. It should be noted that most SME businesses won't spend more than £1m on capital assets so this is likely to only benefit a select few organisations.
The government also introduced a 50% first-year allowance meaning businesses can now deduct 50% of the cost of certain other plant and machinery, referred to as special rate assets, from your profits in the first year of purchase.
A new 27% credit is being made available from 1 April 2023 if your SME business is loss making, and you incur at least 40% of your total expenditure on research & development (R&D) activities. If your qualifying expenditure doesn't reach that amount then a new 10% credit applies instead (as already announced in the Autumn).
The introduction of restrictions based on overseas sub-contractors, and non-UK payroll externally provided workers, that was announced in the Autumn Statement of 2022, will now be delayed by a year. It won't come into force until 1 April 2024.
For the hospitality industry, draught relief will increase from 5% to 9.2% on qualifying beer and cider, and 20% to 23% on qualifying wine, spirits and other fermented products. The duty is a tax paid by brewers which means for pubs to truly benefit, it will require them to pass on the savings.
There will be 12 new investment zones receiving £80m of support and covering the following areas:
There will be £400m for new levelling up partnerships, plus £161m in Mayoral authorities and Greater London. A further £200m is being allocation to regeneration projects in England.
There will be changes to the Capital Gains Tax pages within tax returns. These will now require individuals and trusts to report on the disposals of cryptoassests separately through a new standalone cryptoassets section.
The ability to open Help to Save accounts has been extended until March 2025. It was previously due to close from September 2023.
The Mortgage Guarantee Scheme has also been extended until 31 December 2023, this means an associated extension of the availability of 95% loan to value mortgages.
There was also billions of pounds of new funding announced for Artificial Intelligence and supercomputer research.
The content of this post was created on 15/03/2023 and updated on 04/04/2023.
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