: Budget 2023 predictions: From energy bills and fuel duty to pensions tax allowances
Chancellor Jeremy Hunt will deliver his Spring Budget statement on Wednesday, March 15, and it’s expected he’ll be revealing a number of new policies – which could include additional help with living costs, a fuel duty freeze, and a much-welcomed pensions allowance increase.
While the Treasury has remained tight-lipped about certain policies to be discussed, some department sources have dropped a few hints.
Commenting on what’s thought to be in store, Gary Smith, financial planning partner at Evelyn Partners, said: “Jeremy Hunt has shackled himself a bit with the dogmatic fiscal stance he adopted in the Autumn Statement – and he also fears that an expansionary Budget would keep inflation higher for longer.
“While the Autumn Statement seems to have stolen the tax thunder of the Spring Budget this time around, some targeted measures aimed at supporting household finances and getting the economically inactive back to seeking work look fairly certain.”
Express Money has compiled a guide of the latest Spring Budget predictions, as well as an overview of changes and plans announced during the Autumn Statement to come into effect from April.
Similar to the Autumn Statement, Mr Hunt will announce the Spring Budget after PMQs on Wednesday
Chancellor Jeremy Hunt will present the Spring Budget 2023 to parliament on Wednesday, March 15, 2023.
This usually takes place after Prime Minister’s Questions, which typically finishes at 12.30pm.
Labour leader Sir Kier Starmer will then have the opportunity to respond as soon as the speech ends.
Spring Budget 2023 predictions
Energy price guarantee
Following Money Saving Expert Martin Lewis’ campaign to extend the energy price guarantee at £2,500 for typical households, the Chancellor is expected to keep it at that level for another three months, from April to July.
The move would mean the energy price guarantee, which sees an average household pay £2,500 per year on energy, remain this way, instead of increasing to £3,000 in April as was initially planned.
Mr Smith said: “It seems nailed-on that Hunt will extend the Energy Price Guarantee, particularly with falling wholesale gas prices making the scheme cheaper for the Treasury. Not only would allowing energy bills to spike be deeply unpopular given the fiscal leeway that has emerged, but it would also give a ratchet up to inflation.”
In July, when the price guarantee ends, it’s expected bills will fall to £2,000 as wholesale gas prices fall.
The energy price guarantee is expected to be extended for a further three months to July 2023
The Spring Budget will be aired live on major news channels, including BBC News and Sky News. Details of the speech and announcements will also be published on the Treasury’s website.
Pension allowance increases
Analysts also predict the Chancellor may raise the annual and lifetime pension (LTA) allowances, which currently stand at £40,000 and £1.073million respectively, in an effort to encourage older professionals to stay in or return to work.
Mr Smith said: “These are caps on how much someone can contribute into their pension while still benefitting from tax relief – although, in the case of the LTA, investment growth is included so someone with a defined contribution pot who has made wise investment decisions can be penalised with a tax charge if their sum grows beyond the limit.
“The LTA is too low, given that it stood at £1.8million just 10 years ago and that since then inflation means incomes and savings have soared. The figure Hunt is considering has not been leaked but the annual allowance is said to be going up to £60,000, which is welcome – although the LTA must go up in accordance, otherwise it could mean that more savers hit the LTA.”
Mr Smith predicts that the money purchase annual allowance (MPAA) will also rise from £4,000 to £10,000, in an effort to get some older workers who have taken early retirement back into work.
He said: “The MPAA is triggered when a saver accesses their pension flexibly, as many early retirees do, and means that the annual amount they can save into a pension while benefitting from tax relief drops from £40,000 to £4,000, putting a big restriction on rebuilding pension pots.”
According to Mr Smith, triggering the MPAA also wipes out a person’s three years of unused carry-forward allowances. He explained: “Whether or not it encourages older economically inactive cohorts back to work, we would welcome a boost to the limit as it is an obscure tax trap that catches out a lot of otherwise financially astute savers.
Due to the hike, many households will be looking for ways to legally reduce their inheritance tax bill in order to save money. Inheritance tax is a levy on someone’s estate after they have died, which usually includes their property, money and possessions.
Fuel and alcohol duty
According to The Times, a source said that after accepting that there is a “strong precedent for it”, Mr Hunt may extend the 5p fuel price cut for at least another year – should public finances permit it.
The Treasury is also under pressure to keep the 12-year fuel duty freeze.
The two measures are said to cost £6billion between them, and whether the Government pushes ahead with it is dependent on inflation falling and economic growth recovering.
The Chancellor is expected to announce a rise in tobacco duty, which will see the cost of a 20-pack of cigarettes increase by £1.15.
According to reports, cigarette levies will rise by 12.7 percent in line with the Retail Price Index (RPI), as well as an additional minimum of two percent applied to tobacco products.
This could see the price of a 30g pack of tobacco rise by £2.
State pension age changes and pension tax
The state pension age, which is the earliest age a person can start receiving the state pension, currently stands at 66.
Under the Pensions Act 2014, which requires the Government to review the state pension age every six years, the state pension age for men and women will rise again to 67 between 2026 and 2028.
The state pension age is then due to increase again to 68 between the years 2044 and 2046. However, this timetable could soon be changed by the Government. There has been some speculation that this increase could be accelerated, reaching 68 as early as 2035.
Alice Guy, head of pensions and savings at interactive investor, said: “It’s a question of when not if when it comes to speeding up raising the state pension age to 68. Raising the state pension age earlier than planned in the budget will be an extremely tempting option for Hunt as it’s a relatively easy way to reduce the Governments’ pension bill and balance the books.”
Ms Guy continued: “The Chancellor is likely to have advanced sight of the state second periodic review of the state pension age, led by Baroness Neville-Rolfe, which is due to come out by May this year.
“The review is widely expected to raise the state pension age to 68 as early as 2034, with a knock-on effect on the private pension age. The private pension age will be tied to the state pension age from 2028 and will be 10 years earlier than the state pension age from that point.”
Over 50s back to work scheme
With a rapidly growing number of over 50s out of work, boosting workforce participation among the growing economically inactivity cohort has become a key focus for the Government.
Myron Jobson, senior personal finance analyst at interactive investor, said: “Reasons for not working vary according to age – with long-term illness, caring responsibilities, lack of suitable opportunities among the key factors.
“The Chancellor could choose to strengthen and better promote various employment and reskilling programmes. There have also been whispers that the Government is considering letting people continue claiming sickness and disability benefits if they find work, and is mulling over reforms to childcare – the costs of which are a barrier to many people.”
Tax changes: The higher rate income tax band will reduce from £150,000 to £125,140 from April
Universal Credit and childcare
It’s expected that Mr Hunt will announce new plans that will enable parents claiming Universal Credit to get more help with childcare costs.
Currently, Universal Credit claimants in England, Scotland and Wales who are eligible for the support pay childcare costs upfront and then claim a refund. However, the support has been frozen at £646 a month per child for a number of years, meaning it has not kept up with the rising costs.
Charities have warned the current scheme of paying and claiming a refund risks people getting into debt, therefore, it’s expected the Government will start paying childcare costs upfront.
The maximum amount people can claim for childcare on Universal Credit is also expected to increase by several hundred pounds. However, an exact figure has not yet been given.
Plans and policies that have been confirmed
Several freezes and changes to a range of tax thresholds, from income to capital gains tax, as well as further cost of living support, are due to take effect in April, according to the Chancellor’s Autumn Budget in November 2022.
Cost of living support 2023
While inflation remains at a staggering 10.1 percent high, the Chancellor announced a new raft of cost of living payments to be distributed to vulnerable households this year.
This measure will see households on means-tested benefits receive a cost of living payment of £900, while pensioner households and those on disability benefits will receive another £300 and £150 payment, respectively.
According to the DWP, the payment windows will be “broadly” as follows:
- First Cost of Living Payment: £301 – spring 2023
- Disability Payment: £150 – summer 2023
- Second Cost of Living Payment: £300 – autumn 2023
- Pensioner Payment: £300 – winter 2023/4
- Third Cost of Living Payment: £299 – spring 2024
The Government will be honouring the triple lock in April and state pension rates will rise by 10.1%
State pension triple lock 2023
It has been confirmed the state pension triple lock will be honoured this year. This will see those who receive the state pension a 10.1 percent increase in their payments, in line with September 2022’s inflation rate.
To honour the triple lock, the highest percentage out of three different values (inflation, wage increases, and 2.5 percent) is used to determine how much the state pension will increase. This is to help ensure the state pension doesn’t lose value in “real” terms.
The move will see the full basic state pension increase from £141.85 to £156.20 per week. This equates to £8,122.40 per year.
The full new state pension will increase from £185.15 to £203.85 per week, which amasses to £10,600.20 per year.
Benefits uprating 2023
While some disability benefits must rise every year in line with inflation, most means-tested benefits, such as Universal Credit, only rise under the decisions of ministers.
However, Mr Hunt announced these too will see a boost in line with inflation (10.1 percent) from April. Mr Hunt said this would mean a family on Universal Credit would benefit next year by around £600.
Other benefits that will rise by 10.1 percent from April 2023 include Attendance Allowance, Personal Independence Payment (PIP), Carer’s Allowance, Housing Benefit, Pension Credit, Jobseeker’s Allowance, Disability Living Allowance (DLA), Employment Support Allowance, and more. To view the full list, visit the Government’s factsheet here.
Income tax and National Insurance cuts and freezes
Income tax thresholds have been frozen for a further two years from 2026 to 2028 instead. This move is referred to as a stealth tax.
The higher rate tax threshold at which the 45 percent rate kicks in has also been reduced, meaning higher earners will now pay more tax on their earnings.
Currently, people pay income tax on annual earnings of more than £12,570, charged at 20 percent. Once earnings exceed £50,270 a year, people pay 40 percent tax on the income above that threshold. When they earn £150,000 or more, people pay 45 percent tax on that income.
From April, the 45 percent threshold will reduce to £125,140 instead, which means those earning £150,000 or more will pay just over £1,200 more in tax every year.
The income tax personal allowance (£12,570) and main National Insurance taxes will remain frozen until 2028.
Capital gains and dividends tax allowances
A number of reforms on allowances and unearned income are also expected to come into effect in April.
The dividend allowance will be cut from £2,000 to £1,000 next month and then to £500 from April 2024.
The Annual Exempt Amount for capital gains tax will also be cut from £12,300 to £6,000 next month and then to £3,000 from April 2024.
Corporation tax increase
Despite garnering criticism from a number of Tory MPs, the main rate of Corporation Tax will rise from 19 percent to 25 percent in April.
The Chancellor told MPs that the UK will still have the lowest rate in G7, and that 70 percent of businesses won’t see any increase – only 10 percent of large corporations will pay the full rate.
National Living Wage increase
To honour the “growth” agenda, Mr Hunt also announced further increases to the UK’s National Living Wage, the obligatory minimum wage payable to workers in the United Kingdom aged 23 and over.
This means from April, the hourly rate will rise from £9.50 to £10.42, representing an annual pay rise worth over £1,600 to a full-time worker.
Mr Hunt said: “It is expected to benefit over two million of the lowest paid workers in the country and keeps us on track for our target to reach two-thirds of median earnings by 2024. And it is the largest cash increase in the UK’s National Living Wage ever.”