Chancellor of the Exchequer, Jeremy Hunt, delivered his first Spring Budget on 15 March declaring it was “A Budget for Growth.” The fiscal update included a range of new measures, some of which had been widely trailed prior to Budget day, in order to achieve growth “by removing obstacles that stop businesses investing; by tackling labour shortages that stop them recruiting; by breaking down barriers that stop people working; and by harnessing British ingenuity to make us a science and technology superpower.”
Things economically aren’t as bleak as forecast last November mainly due to falling energy prices and higher tax revenues. This will reduce Government borrowing this year and next by £30bn less than expected. But anyone hoping that we would see major tax cuts will be sorely disappointed. Whilst the economic backdrop is better than expected, the Government faces challenges of persistent low economic growth and public sector pay demands which makes broad relaxation of the tax burden unlikely for the foreseeable future.
Everywhere
The Chancellor spoke about the government’s plans for ‘Levelling Up,’ including the launch of 12 new Investment Zones. Across these “12 potential Canary Wharfs,” £80m of support per zone will be available for skills, infrastructure and tax reliefs. Mr Hunt also mentioned specific projects selected for local investment, including:
- GBP200m for local regeneration projects and GBP400m for new Levelling Up Partnerships across England
- GBP8.8bn over the next five-year funding period for the City Region Sustainable Transport Settlements
- Up to GBP8.6m for the Edinburgh Festivals, as well as GBP1.5m for the repair of Cloddach Bridge, near Elgin, and £20m for the restoration of the Holyhead Breakwater in Anglesey
- Up to GBP3m to extend the Tackling Paramilitarism Programme in Northern Ireland.
Enterprise
To provide the right conditions for businesses to succeed:
- A ‘full expensing’ policy will apply from 1 April 2023 until 31 March 2026 to allow investment in IT, plant or machinery to be deducted in full and immediately from taxable profits
- An increased rate of relief for loss-making R&D-intensive small and medium size enterprises (SMEs) – eligible companies will receive a GBP27 credit from HMRC for every GBP100 of R&D investment
- An extension of higher reliefs for theatres, orchestras, museums and galleries for two further years
- The Medicines and Healthcare products Regulatory Agency (MHRA) will receive £10m extra funding over two years
- All of the recommendations from Sir Patrick Vallance’s review of pro-innovation regulation of digital technologies are accepted
- GBP900m of funding for AI Research Resource and an exascale computer as well as a commitment to GBP2.5bn ten-year quantum research and innovation programme through the government’s new Quantum Strategy
- Innovation Accelerators programme – GBP100m funding for 26 transformative R&D projects
- AI Challenge Prize – GBP1 million prize every year for the next ten years to researchers that drive progress in critical areas of AI.
As has been previously announced changes to corporation tax rates come into effect from 1 April 2023. This increases the main rate of corporation tax to 25% (the small profits rate (profits less than GBP50,000) stays at 19%). Marginal Relief is available for companies whose profits are between GBP50,000 and GBP250,000.
The average rate of corporation tax in Europe is just under 20%. In France, the main rate is also 25%. In Germany corporation tax is levied at a uniform rate of 15% and is then subject to a surcharge of 5.5% (solidarity surcharge), and then there are ‘trade taxes’ that apply. That being said, there is nothing in the Spring Budget to concern those in Paris or Frankfurt.
Employment
The Chancellor turned next to Employment, with a suite of new measures to “remove the barriers that stop people who want to from working.” To achieve this, he announced:
Mature workers
- The expansion of the DWP’s ‘midlife’ MOT scheme, aiming to reach up to 40,000 individuals per year (up from the current 8,000)
- New ‘Returnerships’ scheme to make existing skills programmes more accessible to older workers and help them upskill and retrain
- A pension tax relief overhaul; see details in Personal Taxation and Pensions section.
People with long-term illnesses and disabilities
- A white paper on disability benefits reform
- The abolition of the Work Capability Assessment for disability benefits claimants
- A new voluntary employment scheme for people with disabilities
- GBP406m to increase support for working adults with mental health, musculoskeletal and cardiovascular problems.
Welfare recipients
- An increase to the Administrative Earnings Threshold
- A stronger sanctions regime for Universal Credit claimants.
Care leavers
- A 50% increase in funding for the Staying Close programme
- An increase in the Qualifying Care Relief threshold to GBP18,140 per year plus GBP375 to GBP450 per person cared for per week for 2023/24 and these thresholds will then be index- linked, representing a tax cut worth approximately GBP450 per year on average.
Education
Mr Hunt then turned to Education, stating that he wants to reform the childcare system, currently “one of the most expensive systems in the world.”
His new proposal will offer 30 free hours of childcare each week to pre-school-age children aged nine months or above in English households where both parents work. It will be phased in on the following timeline:
- April 2024 – eligible two-year-olds will receive 15 hours of free childcare per week
- September 2024 – qualifying children aged nine months to two years will receive 15 hours
- September 2025 – eligible children aged nine months to three years will receive 30 hours.
Also, schools and local authorities will be funded to increase availability of wraparound care, to enable parents of school- age children to drop them off between 8am and 6pm.
To tackle the problem of unaffordable upfront costs, Mr Hunt also announced support for the 700,000 families on Universal Credit. Another major change involves each staff member in England being able to look after five two-year-olds instead of four, as is already the case in Scotland.
Personal Taxation and Pensions
To encourage over-50s to extend their working lives, the government is increasing tax relief limits on pension contributions and pots – the Annual Allowance will be raised from £40,000 to £60,000 from April 2023; the Lifetime Allowance (LTA) charge will be removed from April 2023, and the LTA will be abolished from April 2024. The maximum amount that can be accessed tax free (Pension Commencement Lump Sum) will be frozen at its current level of GBP268,275 (25% of current LTA). From April, the minimum Tapered Annual Allowance (TAA) and the Money Purchase Annual Allowance (MPAA) will increase from GBP4,000 to GBP10,000 and the adjusted income threshold for the TAA will also rise, from GBP240,000 to GBP260,000.
It should be noted that the Shadow chancellor describes the scrapping of the LTA for pensions savings as a ‘GBP1Bn pension bung’ and vows to reverse it.
As a reminder, the following changes were previously announced in the Autumn Statement 2022:
- The Income Tax additional rate threshold (ART) at which 45p becomes payable is lowered from GBP150,000 to GBP125,140 from April 2023. The ART for non-savings and non-dividend income will apply to taxpayers in England, Wales and Northern Ireland
- The Dividend Allowance reduces from GBP2,000 to GBP1,000 from April 2023 and to GBP500 from April 2024
- The annual Capital Gains Tax exemption reduces from GBP12,300 to GBP6,000 from April 2023 and to GBP3,000 from April 2024
- The Stamp Duty Land Tax nil-rate threshold for England and Northern Ireland is GBP250,000 for all purchasers and GBP425,000 for first-time buyers, remaining in place until 31 March 2025.
In addition:
- The Income Tax Personal Allowance and higher rate threshold remain at GBP12,570 and GBP50,270 respectively until April 2028 (rates and thresholds may differ for taxpayers in parts of the UK where Income Tax is devolved)
- The basic State Pension will increase in April 2023 from GBP141.85 per week to GBP156.20 per week, while the full new State Pension will rise from GBP185.15 to GBP203.85 per week. The standard minimum income guarantee in Pension Credit will also increase in line with inflation from April 2023 (rather than in line with average earnings growth)
- Inheritance Tax (IHT) nil-rate bands remain at GBP325,000 nil-rate band, GBP175,000 residence nil-rate band, with taper starting at GBP2m – fixed at these levels until April 2028
- National Insurance contributions (NICs) Upper Earnings Limit (UEL) and Upper Profits Limit (UPL) are frozen until April 2028
- The ISA (Individual Savings Account) allowance remains at GBP20,000 and the JISA (Junior Individual Savings Account) allowance and Child Trust Fund annual subscription limits remain at GBP9,000.
Other Key Points
- Defence spending – an extra GBP4.95bn for defence over 2023/24 and 2024/25
- Support for veterans – an additional GBP33m over the next three years
- Potholes Fund – an extra GBP200m for local road maintenance in England in 2023/24
- Alcohol Duty – rates frozen until August 2023 then uprated by RPI, Draught Relief increased to 9.2% for beer and cider and 23% for wine from 1 August 2023
- Fuel duty rates – maintaining the rates of fuel duty at the current levels for an additional 12 months
- Swimming Pool Support Fund – over GBP60m for public swimming pools across England
- Support for charities and community organisations – GBP100m (England)
- Plastic Packaging Tax rate – uprated in line with CPI from 1 April 2023
- Launching ‘Great British Nuclear’ – supporting new nuclear builds, GBP20bn available for Carbon Capture, Utilisation and Storage (CCUS), and extending the Climate Change Agreement scheme for a further two years
- Devolved administrations – receiving an additional GBP630m through the Barnett formula over 2023/24 and 2024/25 (Scottish Government GBP320m, Welsh Government GBP180m and Northern Ireland Executive GBP130m).
Office for Budget Responsibility
The OBR was created by the Government in 2010 to provide independent and authoritative analysis of the UK’s public finances. They scrutinise the Government’s costing of individual tax and welfare spending measures at each Budget. As a Government economic institution, they tend to assess figures against GDP (Gross Domestic Product – the total value of goods produced and services provided in a country during one year). Here is what they say about ‘National Account Taxes’:
Put another way, the tax burden in this country (as a share of GDP) is higher than it has been since the late 1960’s, and it’s forecast to go higher.
Melior Wealth
Established in 2012, Melior Wealth has many years’ experience providing practical financial planning advice to people, families and businesses.
We provide advice across a wide range of services including pensions, savings, investments, protection and tax planning.
Remember, that even in this era of higher taxation, there is still room for planning. There remain opportunities for:
- Tax efficient investing – have you taken full advantage of your annual allowance?
- Pension planning – could you save tax AND save for your later life?
- Inheritance Tax planning – have you mitigated death duties as far as you can, and do you have a valid Will?
- Family Protection – are you protected if something goes wrong?
- Tax Administration – are your tax returns up to date and are you planning for future tax changes?
