What You Need to Know

The UK Chancellor of the Exchequer Jeremy Hunt delivered his Spring Budget 2023 on Wednesday, March 15th. He announced a series of measures to support the economy, boost public services and tackle inflation. Here are some of the key points of his speech:

Economy and Inflation

The UK will avoid a recession in 2023, according to the independent forecasters, the Office for Budget Responsibility (OBR). They expect the economy to grow by 1.4% this year, up from 0.9% in their previous forecast.
Inflation will more than halve and reduce to 2.9% by the end of the year, the OBR expects. The chancellor said this was due to his government’s commitment to cut inflation by 50% before the end of 2023.
The chancellor announced a £2.5 billion cap on energy bills for households until June 2023, extending the Energy Price Guarantee (EPG) scheme that was due to expire in March. He said this would save an average family £200 a year on their bills.
The chancellor also announced a £11 billion increase in defence spending over the next five years, saying it was vital for national security and global influence.

How will the UK 2023 budget announcement affect households?

So how will the budget affect households across the UK? Here are some of the key measures that will have an impact on your income, spending and savings.

Pensions

The chancellor has announced a major overhaul of pensions, which he said would make them simpler and fairer. He has scrapped both the lifetime allowance and annual allowance for pension contributions, which limit how much people can save into their pensions without paying tax.
Instead, he has introduced a single flat-rate tax relief of 25% on all pension contributions, regardless of income or age. This means that for every £4 you save into your pension, you will get £1 from the government.
This change will benefit lower and middle earners who currently get less tax relief than higher earners. However, it will also reduce the incentive for higher earners to save into their pensions, as they will lose out on their higher rate of tax relief.
The chancellor has also increased the state pension age from 66 to 67 from April 2023, affecting anyone born after April 6th 1956. He said this was necessary to ensure that state pensions remain affordable and sustainable as life expectancy increases.

Benefits

The chancellor has extended some of the temporary increases to benefits that were introduced during the pandemic until September 2023. These include:

The £20-a-week uplift to universal credit
The suspension of the minimum income floor for self-employed claimants
The increase in local housing allowance rates
The increase in statutory sick pay
The increase in working tax credit

He said these measures would provide extra support to millions of households who have been affected by Covid-19 and help them transition back to work as restrictions ease.

However, he also announced some changes to benefits that could reduce some people’s incomes or eligibility. These include:

Freezing working-age benefits (except disability benefits) at their current levels until April 2025
Reducing universal credit childcare payments from 85% to 75% of costs from October 2023
Introducing a two-child limit for child benefit from April 2024
Abolishing child trust funds and junior ISAs from April 2024

He said these changes were necessary to ensure that benefits are targeted at those who need them most and that work always pays more than welfare.

Childcare

The chancellor has announced a new package of measures to help parents with childcare costs and encourage more women back into work. He said this would boost productivity and growth in the long term.
He has introduced a new childcare subsidy scheme that will replace tax-free childcare from October 2023. Under this scheme, parents will receive up to £500 per quarter per child under five towards their childcare costs, regardless of their income or hours worked.
He has also increased free childcare hours for threeand four-year-olds from 15 hours per week to 30 hours per week from September 2023. He said this would benefit around one million families across England.
He has also extended free school meals eligibility to all children under seven years old from September 2023. He said this would ensure that no child goes hungry during school hours.

Health and Social Care

The chancellor announced an extra £6 billion for health and social care over the next three years. He said this would help tackle waiting lists, improve mental health services and fund social care reforms.
The chancellor confirmed that he would introduce a new Health and Social Care Levy from April 2023. This will be a separate tax on earned income at a rate of 1.25%, paid by both employees and employers. He said this would raise around £12 billion a year for health and social care spending.
The chancellor also confirmed that he would implement a new cap on lifetime social care costs at £86,000 from October 2023. This means that no one will have to pay more than this amount for their personal care in their lifetime, regardless of their assets or income.

Taxes

The chancellor has frozen most personal tax thresholds until April 2025, meaning that more people will pay higher rates of income tax as their wages rise with inflation. This is known as fiscal drag or stealth taxation.
He has kept the personal allowance (the amount you can earn before paying income tax) at £12,570 and the higher-rate threshold (the point at which you start paying income tax at 40%) at £50,270 until 2025-26. This means that anyone earning more than this amount will pay 40% tax on their income above this level.

How does this affect businesses?

How will his budget affect businesses in different sectors and regions? Here are some of the key points that business owners and managers should know.

Business rates

The chancellor announced a review of business rates, which are taxes paid by businesses based on the value of their property.
He said he wanted to make business rates fairer and more responsive to changes in property values.
He also extended the business rates holiday for retail, hospitality and leisure businesses until June 2023, followed by a 66% discount until March 2024.
He said this would support businesses that have been hit hard by lockdowns and social distancing measures.

Corporation tax

The chancellor confirmed that he would increase corporation tax from 19% to 25% from April 2023, as he announced last year. However, he said he would introduce a small profits rate of 19% for businesses with profits under £50,000, which he said would protect over 70% of businesses from paying more tax.
He also said he would introduce a taper above £50,000 so that only businesses with profits above £250,000 would pay the full rate of 25%. He said this would ensure that large corporations pay their fair share of tax.

Super deduction

To encourage businesses to invest in productivity-enhancing assets and boost economic growth the chancellor extended the super deduction scheme until March 2024, which allows businesses to claim a 130% deduction on qualifying capital investments such as machinery and equipment.

Levelling up fund

The chancellor announced an extra £1 billion for the levelling up fund, which is a pot of money for local projects that support economic recovery and regeneration across England.
He also revealed some of the successful bids for funding from different regions such as Cornwall (£23 million), Tees Valley (£52 million) and West Midlands (£71 million).
He said this would help create jobs and opportunities in areas that have been left behind.

Green investment

The chancellor pledged to invest in green projects that support the UK’s transition to net zero emissions by 2050.
He announced an extra £15 billion for green bonds over three years, which are government-backed loans for environmental projects such as renewable energy and clean transport.
He also announced an extra £1 billion for carbon capture technology over four years, which captures carbon dioxide emissions from industrial processes and stores them underground or uses them for other purposes.
He said this would help reduce greenhouse gas emissions and create new industries.

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