At first sight, it’s good news as the chancellor increases the annual pension allowance tax charge limit to £60,000 and abolishes the lifetime allowance. But look a little closer, and perhaps it is not quite as generous as one might have hoped for….
Despite intense pressure to cut taxes in his first Spring Budget, the Chancellor resisted, and while he seemed to deliver a fiscal plan that promised to stimulate growth, as we look at the detailed proposals it is clear some of his announcements aren’t quite as generous as they first appear.
As anticipated, there were few announcements on tax beyond those already made in the Autumn Statement, and many of the changes had already been released through the press in the run-up to the budget. There were no real surprises beyond the abolition of the lifetime pension allowance (which exceeded our expectations) and the increase in the minimum annual pension allowance from £4,000 to £10,000.
Jeremy Hunt described his Budget as ‘one for Growth based on the 4 pillars of the Government’s industrial strategy: Enterprise, Employment, Education and Everywhere’. The Government is working towards halving inflation, reducing public debt and getting more people into work and back to work to boost economic growth.
With the Office for Budget Responsibility (OBR) reporting inflation will fall from the current 10.1% to 2.9% by the end of 2023, and with borrowing costs and energy prices lower than previously expected, it is now predicted the UK won’t enter a recession this year.
The Chancellor promised to restore credibility to the UK’s finances and yet he is facing an economy which is languishing, and despite confidently suggesting that we are outperforming, that is unfortunately not the case. The Chancellor was keen to highlight growth, but there is still going to be a 0.2% contraction for the year.
While the economic situation is now improved relative to forecasts from just a few months ago, the UK economy remains subdued and is still forecast to lag behind its international peers.
There were no significant changes to personal taxation with the personal allowance remaining at £12,570. As per the Autumn statement, income tax bands remain unchanged with the annual allowances for capital gains tax and dividend income reducing as we enter the 2024 financial year, with further reductions planned for the financial year 2025.
The Chancellor was expected to raise the pension Lifetime Allowance (LTA), currently £1,073,100, up to £1.8m, closer to its previous peak, but instead he abolished it. The Government will remove the Lifetime Allowance charge from 6 April 2023, before fully abolishing the Lifetime Allowance in a future Finance Bill. This was aimed at targeting the depleting number of senior medics working in the NHS, with a view to hoping some may stay on rather than retire – time will tell!
The Annual Pension Allowance will be increased from £40,000 to £60,000 from April 2023 and individuals will continue to be able to carry forward unused Annual Allowances from the 3 previous tax years. This will make the NHS pension a much more attractive retirement vehicle. However, it should be noted that Keir Starmer has already pledged to reverse the scrapping of the LTA, except for targeted measures for the NHS, should a Labour Government be elected.
The Chancellor also announced an expansion of the 30 hours of free (term time only) childcare to children from the age of 9 months, although this will not begin to apply until April 2024 and is subject to staged implementation. Further reforms to get more people into work, supporting those on benefits, older workers and those will health conditions were also announced.
The chancellor said he wants the UK to have the “most pro-business, pro-enterprise tax regime anywhere” and introduced enterprise measures which he said would lower business tax.
It was confirmed Corporation Tax rates will increase from April 2023 as planned, despite calls for these to be scrapped, with the Chancellor stating only 10% of companies would pay the headline 25% rate and that at 19% “our corporation tax rate did not incentivise investment as effectively as countries with higher headline rates”.
For the markets, it was not going to be a budget where the government would take big bold moves. We knew that they would not announce anything that would risk challenging stability, and so it was no surprise there was little in it from a markets’ perspective. The Chancellor was extremely mindful of the chaos created by Kwasi Kwarteng’s mini-budget of last Autumn, and whilst markets have fallen, this is linked to negative developments in the banking sector, and not Jeremy Hunt’s announcements from the dispatch box.
With the exception of changes to the pension annual and lifetime allowances, there were few announcements that will directly impact clinicians (whether this be in primary or secondary care) although they may facilitate partner/staff retention. Proposed improvements to state-funded childcare should also enable staff with young children to return to work.
The above changes, in addition to the new voluntary employment system, Universal Support, have been brought in with the intention of boosting the size of the UK workforce. The current low rate of labour force participation in the UK is having an adverse impact on economic growth. Time will tell whether the changes will work as intended, or whether alternative measures would have been more effective.