A raft of changes were announced today by Chancellor Jeremy Hunt in the Budget from the scrapping of the lifetime pension allowance to increased help with childcare.
Other changes include the extension of the £2,500 Energy Price Guarantee, a freeze in fuel duty and changes to Universal Credit benefits.
Below, we explain what all today’s announcement mean for you and your money.
One of the biggest shocks of the whole Budget was the scrapping of the lifetime pension allowance. It was thought the £1.07million limit would be hiked to £1.8million but Hunt has got rid of it altogether.
He said this was done to stop doctors and professionals leaving the workplace.
“These changes will stop over 80 per cent of NHS doctors from receiving a tax charge and incentivise our most experienced and productive workers to stay in work for longer. It will simplify our tax system, taking thousands of people out of the complexity of pension tax.”
The pensions annual tax-free allowance has also increased by 50 per cent from £40,000 to £60,000.
Additionally, the amount you can put in your pension once you’ve already withdrawn some has increased.
Those who start to take money from a defined contribution pension pot, the amount that can be contributed to their defined contribution pensions while still getting tax relief, is capped at a level much lower than the usual annual allowance. This is known as the money purchase annual allowance or MPAA.
Currently, if an employee triggers the MPAA, the most they can put into a pension plan tax-free each tax year is just £4,000, even if they are working part-time and earning more than that. For those who have fully retired and are under 75, the cap is just £3,600 per tax year.
However, this amount has been increased to £10,000 which will help people who need to dip into their pension pots before officially retiring, but still need to keep building up their pension before fully giving up work.
The £6,000 increase will be worth an additional £2,700 of tax relief to someone earning over £360,000 meaning a minority of very high earners will be some of the biggest winners from today’s Budget announcements.
After listening to a host of charities and experts including Martin Lewis, the chancellor announced the Energy Price Guarantee would remain at £2,500 for next three months – an announcement that had already been anticipated.
This would save households £500 a year if it wasn’t for the ending of the £400 Government support scheme, which was handed to homes in £67 and £66 increments over the past few months.
As such, realistically, monthly bills will still increase for households across the UK.
Households on energy prepayment meters will have their charges brought into line with direct debit charges charges. The customers on these types of meters are often some of the most vulnerable in society yet are often charged more than those with standard devices.
Hunt said: “The energy premium paid by our poorest households is coming to an end.”
The news has been welcomed by campaigners.
Richard Lane, StepChange Director of External Affairs, said: “It was vital that today’s budget set out bold plans that targeted support at the millions of households facing real financial difficulty following more than a year of this gruelling cost of living squeeze. The extension of the Energy Price Guarantee, the end to extra pre-payment meter fees and the extra childcare support announced will make a real difference to struggling households.
When times are tough such facilities matter even more. The Government said today it would provide £63m of funding to keep public leisure centres and pools afloat.
The duty on pints has been frozen. In December, Hunt extended the alcohol duty freeze until 1 August, after which duties will go up in line with inflation in the usual way.
However, from 1 August the duty on draught products in pubs will be up to 11p lower than the duty in supermarkets.
Hunt said: “British ale may be warm, but the duty on a pint is frozen.”
The fuel duty has been frozen, as it was widely expected to be. As inflation remains high Hunt said now is not the right time to uprate fuel duty with inflation.
The further 12 month freeze will maintain the existing 5p cut and is said to save the average driver £100 next year and around £200 since the 5p cut was introduced.
In eligible households where all adults are working at least 16 hours, the Government will introduce 30 hours of free childcare not just for 3-and-4 year-olds, but for every child over the age of 9 months.
The 30 hours offer will start from the moment maternity or paternity leave ends. The package is worth on average £6,500 every year for a family with a two-year-old child using 35 hours of childcare every week, and reduces their childcare costs by nearly 60 per cent.
It will be introduced in stages. Working parents of two-year-olds will be able to access 15 hours of free care from April 2024, helping around half a million parents.
From September 2024, that 15 hours will be extended to all children from 9 months up, meaning a total of nearly one million parents will be eligible. From September 2025 every single working parent of under 5s will have access to 30 hours free childcare per week.
Funding for free nursery childcare is also rising to £204m from September, increasing help for parents on Universal Credit.
He is increasing the maximum they can claim to £951 for one child and £1,630 for two children, an increase of almost 50 per cent.
The Government is also piloting incentive payments of £600 for childminders who sign up to the profession, rising to £1,200 for those who join through an agency.
It will also increase the funding paid to nurseries providing free childcare under the hours offer by £204m from this September rising to £288m next year. This is an average of a 30 per cent increase in the two-year-old rate this year.
Sanctions will be applied more rigorously to those on Universal Credit without a health condition, who are looking for work or on low earnings.
There are more than two million jobseekers in this group and they would face sanctions if they fail to meet strict work-search requirements.
For those working low hours, the Government will increase the Administrative Earnings Threshold from the equivalent of 15 hours to 18 hours at National Living Wage for an individual claimant, meaning that anyone working below this level will receive more work coach support alongside a more intensive conditionality regime.
The Administrative Earnings Threshold determines which group a person is placed in based on how much they earn, and therefore how much support they receive to find work and develop a career. The groups include ‘Light Touch’ and ‘Intensive Work Search’.
These changes are going to make it much harder for people who do not work and who the Government thinks should.
Disability benefit reform
The Government will abolish the Work Capability Assessment in Great Britain and separate benefit entitlement from an individual’s ability to work.
As a result, disabled benefit claimants will always be able to seek work without fear of losing financial support, Hunt claims.
The Conservatives will also fund a new programme called Universal Support which is a new, voluntary employment scheme for disabled people where the Government will spend up to £4,000 per person to help them find appropriate jobs and put in place the support they need. It will fund 50,000 places each year.
Mr Hunt adds: “We also want to help those who are forced to leave work because of a health condition such as back pain or a mental health issue.
“We should give them support before they end up leaving their job, so I am also announcing a £400m plan to increase the availability of mental health and musculoskeletal resources and expand the Individual Placement and Support scheme.”
Over 50’s in workplace
Hunt has detailed his plans to encourage people over the age of 50 to remain in work or return to work.
Some 3.5 million of pre-retirement age over 50s are not part of the labour force, an increase of 320,000 since before the pandemic.
The UK now has the 23rd highest inactivity rate for over 55s in the OECD.
Hunt said: “We will increase the number of people who get the best possible financial, health and career guidance ahead of retirement by enhancing the DWP’s excellent “Mid-life MOTs” Strategy.
“Second with my RHF the Education Secretary, we will introduce a new kind of apprenticeship targeted at the over 50s who want to return to work.
“They will be called Returnerships, and operate alongside skills boot camps and sector-based work academies.
“They will bring together our existing skills programmes to make them more appealing for older workers, focussing on flexibility and previous experience to reduce training length.”