The Spring Budget 2023 is set to be announced this week, 15th March, marking Jeremy Hunt’s second fiscal statement since becoming chancellor.
Against the backdrop of the cost of living crisis, increasing energy bills and general inflation, Mr Hunt is expected to focus on these as the main issues during his budget announcement. Here are some of the main predictions circling in advance of this week’s statement:
Energy and fuel
The wholesale cost of gas has fallen sharply after 2022 saw a huge increase in price for both petrol and diesel. It is hoped that the planned 12p rise in fuel duty will be frozen, along with the current relief of 5p per litre extended for another year.
The current Energy Price Guarantee (EPG) has kept bills for the average home capped at around £2,500 a year, but is set to expire in April, when it will rise by 20 per cent to around £3,000. The Chancellor could extend the programme at the £2,500 level by a further three months, at a one-off cost to the taxpayer of around £3bn.
Income tax
Starting from April 6th 2023, the threshold at which the additional 45% income tax rate applies is due to reduce from £150,000 to £125,140. Additionally, personal allowance and tax thresholds for basic income, National Insurance contributions, inheritance tax, and pension tax allowances will be frozen until April 2028.
During the Spring Budget, the government could consider increasing the income tax personal allowance and higher rate threshold, although this may not be possible due to the high cost. As income tax changes are already in motion, further announcements of any description could be viewed as unsettling – so the rate is likely to remain unchanged.
Business Taxes
With the main corporation tax rate due to increase to 25% as of April 1st 2023, it’s likely that the United Kingdom will become a less desirable location for multinational corporations. An immediate reduction in Corporation Tax rates seems unlikely seeing as it was less than 6 months ago that Mr Hunt reversed then-Chancellor Kwasi Kwarteng’s proposal to freeze the Corporation Tax rate at 19%.
To bring back some certainty to the corporate planning process, the Chancellor could decide to pre-announce future tax cuts to corporation tax, possibly via a roadmap over a period of 5 years. Other potential changes could include a replacement of the temporary 130% ‘super-deduction’ tax relief on investment which is due to expire on 1st April 2023, or further changes to Research & Development (R&D) tax reliefs.
Public sector pay
Following months of strike action from workers, including nurses, doctors, teachers and rail workers, Mr Hunt is likely to outline a stronger public sector pay deal to bring the walkouts to an end. Public sector pay has fallen faster than private sector pay in the wake of the pandemic, whilst job vacancies have continued to grow. Many have called for a 5.5 per cent pay rise, which would start to close the pay gap between public and private sectors. However, this would cost the government an additional £5bn, making it an unlikely option – so negotiations are expected to continue beyond the budget.
Pensions
An announcement is very possible on the pensions lifetime allowance, in order to incentivise older people back into the workforce. The lifetime allowance is the limit on how much you can save across all your pensions before being hit with a tax charge. In 2022-23, the lifetime allowance remained at £1.073m and it is currently frozen until 2026.
However, increasing the lifetime allowance could encourage older people, especially high earners and those with generous final salary pensions (such as NHS consultants) back into work as they could carry on building their pension savings without being hit by a tax charge.
The state pension age is also being reviewed, and there are reports that any changes could be announced in the forthcoming budget. While it was initially projected to rise to 68 between 2044 and 2046, the government is looking to generate more revenue and lower expenditures.
We will be monitoring the Spring Budget as it happens on 15th March 2023 and will share a Budget Update shortly afterwards. If you would like to discuss any aspect of tax planning with us, please get in touch on 023 8033 2733.