During the 2023 Spring Budget, the Chancellor announced changes to pensions, which may alter the way you save for retirement.
Exactly two years since the first lockdown was announced, the eyes of the public were firmly fixed on the Chancellor, Rishi Sunak, as he rose to the despatch box in the House of Commons to deliver his Spring Statement.
Yet again, Mr Sunak found himself addressing MPs against a background of crisis, with the residual impact of COVID, the invasion of Ukraine and the cost-of-living crisis all affecting the economy in different ways.
The cost-of-living crisis will have been weighing especially heavily on the Chancellor’s mind. Just hours earlier, the Office for National Statistics (ONS) had confirmed that inflation had hit a 30-year high of 6.2 per cent. Meanwhile, petrol and diesel were averaging 166p and 178p a litre respectively, and anxiety is rising about the £693 increase to the energy price cap coming into effect on 1 April.
Compounding matters, a 1.25 percentage point increase in National Insurance Contributions (NICs) for employees and employers is set to take effect on 6 April.
Employers will also need to contend with substantial rises in the rates of the National Minimum Wage (NMW) and National Living Wage (NLW) from 1 April.
Individuals and businesses alike were hoping the Chancellor would announce further measures to address the cost-of-living crisis.
However, this was a Spring Statement. While they can morph into mini-Budgets, they typically contain little by way of concrete tax and spending measures.
Instead, the main purpose of a Spring Statement is to set out the latest economic forecasts prepared by the Office of Budget Responsibility (OBR), often followed by the launch of various consultations on the Government’s longer-term plans.
Mr Sunak and his allies had spent the days and weeks ahead of the Statement letting it be known that he wanted largely to stick to his existing plans and resist calls to make major changes.
Delivering the Mais Lecture at Bayes Business School last month, Mr Sunak said:
“And the impact of these trends on people is being exacerbated by high inflation. This is primarily a global problem, driven by higher energy and goods prices.
“The government is dealing with high inflation by helping people with those extra costs, and through the monetary policy framework.
“But over the longer-term, the most important thing we can do is rejuvenate our productivity.”
The suggestion was that Government assistance with the cost-of-living crisis should be limited and that dramatic interventions would not be on the cards.
But the scale of the crisis meant political pressure on the Chancellor from diverse quarters to take immediate action was increasing by the day.
In the event, the Chancellor bowed to pressure and pulled several rabbits from his hat with a focus on supporting workers.
As expected, the OBR’s forecasts for the economy painted a less optimistic picture than they did at the Autumn Budget.
Growth is now expected to be 3.8 per cent in 2022, down from the previous forecast of six per cent, 1.8 per cent in 2023 and 2.1 per cent in 2024.
Meanwhile, inflation is projected to reach 7.4 per cent this year with a peak of 8.7 per cent in Q4, 4 per cent in 2023 and 1.5 per cent in 2024.
The picture in relation to unemployment is generally more positive, with a forecast of four per cent in 2022, 4.2 per cent in 2023 and 4.1 per cent in 2024.
The Chancellor dedicated a substantial proportion of his speech to the invasion of Ukraine and stressed the impact of the crisis on the global economy and on the cost of living in the UK.
He began with one of the more eye-catching announcements of his speech, and one that hasn’t featured in even a full Budget for many years – a one-year temporary 5p a litre cut in fuel duty applying from 6pm on Wednesday 23 March 2022.
The Chancellor committed to cutting VAT for homeowners installing energy saving measures to 0 per cent.
He also reiterated his February announcement of a £9 billion package to help with rising energy bills following the increase in the price cap.
Shifting away from a direct focus on the immediate pressures on the cost of living, the Chancellor unveiled his Tax Plan, setting out his intentions for the remainder of this Parliament, which is due to last until 2024 and comprises three elements:
As well as the temporary cut to fuel duty, the Chancellor said he will increase the annual Primary Threshold and Lower Profits Limit for National Insurance to £12,570 from July 2022, as part of the first commitment. Meanwhile, Class 2 NIC payments will be reduced to nil between the Small Profits Threshold and Lower Profits Limits.
He said that 70 per cent of workers would see their National Insurance payments fall, even after the addition of the Health and Social Care Levy, which comes into effect on 6 April as planned.
Next, he said that the Employment Allowance will rise from April 2022 from its current level of £4,000 to £5,000, saving businesses up to an additional £1,000 on Class 1 National Insurance contributions.
Moving to creating the conditions for private sector-led growth, the Chancellor said his focus would be on “capital, people and ideas”.
He announced his intention to cut and reform taxes on investing in businesses, building on the momentum of the super-deduction.
He also said the Treasury will engage with businesses on ways to cut taxes on investment and will confirm plans later this year at the Budget.
On people, the Chancellor said he would look at ways to offer more high-quality employee training.
On ideas, he said that further reforms to Research and Development Tax Reliefs would be announced at the next Budget, with the Government planning a boost worth £5 billion.
Moving to letting people keep more of what they earn, the Chancellor announced a surprise cut to the basic rate of income tax from 20 per cent to 19 per cent from April 2024.
He said that, alongside this, the Government will look to reform tax reliefs and allowances before 2024.
The Spring Statement was a classic example of the Chancellor managing expectations downwards in order then to exceed them.
In this case, what had been billed as a rather vanilla financial statement containing little by way of substantive change transpired to include not only increases in the National Insurance thresholds for employees and the self-employed and cuts to fuel duty, but also plans to cut the basic rate of income tax in two years’ time.
While this will be good news for the finances of many individuals, notwithstanding the forecast that inflation will reach a peak of 8.7 per cent in the autumn, employers and business owners might be hoping there will be more for them at the Autumn Budget 2022.
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Business rates will be cut by 50 per cent in 2022/23 for firms in the hospitality, retail and leisure sectors, Budget 2021 documents have revealed.
With the Speaker of the House of Commons by tradition not presiding over the Budget, the Chancellor might have hoped he would escape a rebuke over the number of important announcements disclosed to the media in advance.
That was not to be, with the Chancellor instead receiving a ticking-off from Dame Eleanor Laing, the Chairman of Ways and Means, who takes charge on Budget day.
Before Rishi Sunak rose to the despatch box, we already knew the public sector pay freeze would end. The Treasury had also confirmed there would be £5.7 billion for public transport in city regions, £5.9 billion to tackle waiting lists in the NHS, an increase in the National Living Wage to £9.50 an hour, £1.8 billion for housing on brownfield sites, as well as further cash for education.
The question, then, was what the Chancellor was saving for the Budget and whether this would include any significant tax changes.
The 2021 Spring Budget marked a post-pandemic turning point in the Government’s approach to tax and spending. Already this year, the Government has announced several significant tax rises. Corporation Tax is rising in 2023 and next year will see Dividend Tax and National Insurance Contributions rise by 1.25 percentage points.
Any taboo around tax rises had been blown apart. But, at the same time, the cost of living has risen rapidly, putting pressure on households and businesses.
The question, then, was how the Chancellor would balance the cost of the spending plans already set out and the need to recognise the pressure on households and businesses against his desire to repair the public finances following the pandemic.
Would taxes rise and, if so, who would be the winners and losers?
The economy and public finances
In contrast to his two previous Budgets in Spring 2020 and Spring 2021, the Chancellor struck a strikingly optimistic tone about the country’s economic prospects.
He said that forecasts from the independent Office for Budget Responsibility (OBR) predict economic growth of 6.5 per cent this year, with the economy returning to its pre-pandemic size at the beginning of 2022.
Next year, the OBR expects GDP to rise by six per cent, followed by increases of 2.1 per cent in 2023, 1.3 per cent in 2024 and 1.6 per cent in 2025.
The forecast is significantly better than that presented at the Spring Budget when the OBR predicted economic growth of four per cent this year.
Meanwhile, the OBR’s forecasts for long-term economic scarring as a result of the pandemic and for unemployment have been cut from three per cent to two per cent and 12 per cent to 5.2 per cent respectively.
Acknowledging the increasing pressure on households and businesses, the Chancellor said that inflation is predicted to average four per cent next year.
Turning to borrowing, the Chancellor announced a revised Charter for Budget Responsibility, which will require that:
He said these rules have been met.
Moving to the spending review, the Chancellor said there would be real terms increases in spending for every Government department, with overall spending over the parliament rising by £150 billion, averaging 3.8 per cent a year.
He said local authorities will receive grant funding of £4.8 billion, while overseas aid will once again reach 0.7 per cent of GDP by the end of the Parliament.
The Chancellor went on to say that schools funding for each pupil will return to 2010 levels and a tripling of investment would create 30,000 new special school places.
He then set out 1.7 billion of Levelling Up funding for places include Stoke, Leeds, Doncaster and Leicester.
Next, he said there would be £21 billion for roads and £46 billion for railways as well as funding to bring public transport in regional cities in line with that available in London.
Finally, he outlined a £3.8 billion investment in skills and training.
Moving to his plans for science and technology, the Chancellor said that Government research and development (R&D) spending would reach £20 billion by 2024-25 and £22 billion by 2026-27.
However, he said there were problems with the way R&D tax reliefs have been working, announcing plans to expand them to cover investment in cloud technology and data, but also to restrict their use to domestic activities. He did not set out what would constitute domestic activities.
Elsewhere for science and technology, he announced the launch of visa programmes for highly skilled individuals.
He also confirmed a new UK Shared Prosperity Fund worth £2.6 billion to boost skills.
Hospitality was a significant theme in the Budget, with the Chancellor making several announcements targeted at the sector.
400,000 properties used by retail, hospitality and leisure businesses will be able to benefit from a 50 per cent business rates discount.
Meanwhile, the Chancellor announced extensive changes to alcohol duties, which included simplifying the banding to ensure the drinks with the highest alcohol content had higher duties and those with the least alcohol, the lowest duties.
He said this would mean high percentage drinks would attract more duty and the lowest percentage drinks would attract less than they have done until now.
Meanwhile, Small Brewers will be expanded to other small alcohol producers, while there will also be reliefs for draught beers and sparkling wines.
Turning to the arts and culture, he said tax reliefs for the sector would be doubled and extended until March 2024.
Before the Budget, there was some suspicion that business and personal taxes might be at the forefront of the Chancellor’s announcements. However, that turned out not to be the case with them receiving relatively little attention in the speech itself.
The Chancellor made no mention of the Capital Gains Tax (CGT) and Inheritance Tax (IHT) reforms that had been predicted in some quarters.
Instead, he turned his attention to business rates, saying he would not heed calls to scrap them, instead opting for more frequent revaluations every three years, starting in 2023; introducing an investment relief for green technologies and an improvements relief that would delay increases in rates, in the following 12 months; as well as cancelling the planned increase in the multiplier.
Away from business rates, the Chancellor confirmed a further extension to the £1 million Annual Investment Allowance until March 2023.
He said that, as expected, the planned increase in fuel duty would be cancelled. Also expected, was confirmation that the National Living Wage will rise to £9.50 in April 2022.
The Chancellor announced details of the Residential Property Developer Tax, announced in February 2021, confirming a four per cent levy on companies and corporate groups’ profits from UK residential property, where they exceed £25 million a year.
While not announced in the Budget, the documents published after the Chancellor sat down confirmed that the deadline for paying Capital Gains Tax (CGT) on property would be extended from 30 to 60 days.
The Chancellor struck a markedly different tone from his Spring Budget, with optimism that could have been mistaken for the Prime Minister.
There were no new major tax rises and good news for the beleaguered hospitality sector.
Strikingly, the Chancellor felt sufficiently optimistic to say he planned to see taxes going down by the end of Parliament.
Whether that ambition will come to pass will depend on whether the economy meets the new, more upbeat expectations set out by the OBR.
The Chancellor of the Exchequer, Rishi Sunak, is expected to announce that the Government will be pumping extra billions into the economy when he sets out details of the Budget and Spending Review on October 27.
The Recovery Loan Scheme will help businesses restart and recover from the Covid-19 pandemic, the Government has announced. Read More
In the year since the Chancellor, Rishi Sunak, delivered his first Budget to a packed Commons chamber in March 2020, more than 135,000 people in the UK have died from Coronavirus, there have been three national lockdowns, the economy has shrunk by 9.9 per cent and Coronavirus support measures have cost around £280 billion.
As a result, Government borrowing – the budget deficit – is expected to rise from a forecasted £55 billion to about £355 billion by the end of 2020-21. Meanwhile, national debt is already approaching 100 per cent of GDP at £2.1 trillion and could rise to 120 per cent of GDP during the first half of the decade according to the Office for Budget Responsibility (OBR).
The widely respected Institute for Fiscal Studies (IFS) warned late last year that around £40 billion of tax rises will be needed by the middle of the decade to keep borrowing down to £80 billion a year and debt down to 100 per cent of GDP, prompting intense speculation that they could come as soon as this Budget.
With the Conservatives having committed in their 2019 General Election Manifesto not to raise the rates of Income Tax, National Insurance or VAT, much of the speculation about possible tax rises was focused on Capital Gains Tax (CGT) and Corporation Tax.
At the same time, the Budget came against the background of a growing sense of cautious optimism. More than 20 million people have now been vaccinated against Coronavirus and, just over a week ago, the Prime Minister set out the Government’s roadmap out of lockdown.
In announcing the roadmap out of lockdown, the Prime Minister – echoed by various ministers over the intervening days – all but confirmed the Chancellor would announce further Coronavirus support for businesses and the self-employed at the Budget.
Then, at 10pm the night before the Budget, several major news organisations reported the same details of how the various Coronavirus support measures would be extended, leaving little doubt about what the Chancellor would say on the subject.
The question, then, as Mr Sunak rose to the dispatch box in a virtually deserted Commons chamber, was whether he would increase any taxes immediately or hold off until a later date.
The Chancellor began by noting the way that the Coronavirus pandemic has fundamentally altered our way of life and summarising the Government’s response to the crisis.
After promising to do whatever it takes to support people through the crisis, he said: “It’s going to take this country and the whole world a long time to recover”.
Turning to the economic outlook, the Chancellor said that the OBR is now expecting a swifter and more sustained recovery than it had expected in November, with the economy now expected to return to its pre-Covid level by the middle of next year – six months earlier than forecast.
However, he said that in five years’ time, the economy will still be three per cent smaller than it would have been, had it not been for the pandemic.
He said that growth this year is forecast to be four per cent, rising to 7.3 per cent in 2022, followed by growth of 1.7 per cent, 1.6 per cent and 1.7 per cent in the subsequent years.
Turning to the Government’s Coronavirus support measures, the Chancellor confirmed, as had been trailed, that the furlough scheme – the Coronavirus Job Retention Scheme (CJRS) – would be extended to the end of September 2021, continuing to pay furloughed workers 80 per cent of their usual wages, capped at £2,500 a month.
However, unlike the scheme as it currently operates, he said employers will have to contribute 10 per cent of a furloughed worker’s wages in July and 20 per cent in August and September.
Moving to support for self-employed individuals, the Chancellor said that 600,000 newly self-employed people would be eligible for the fourth round of the Self-Employment Income Support Scheme (SEISS) as people who have submitted a 2019-20 Self-Assessment tax return will now be eligible.
The fourth round of the scheme will once again provide grants worth up to 80 per cent of trading profits, capped at £7,500. Applications will open in late April.
He then announced a fifth grant worth three months of average profits. This will continue to pay grants at 80 per cent of usual trading profits capped at £7,500 for people whose turnover has fallen by 30 per cent, but it will reduce to 30 per cent of usual trading profits capped at £2,850 for people whose turnover has fallen by less than that.
The Chancellor also announced the extension of the £20 a week uplift to Universal Credit for people who have lost their jobs for the next six months.
Moving to direct support for businesses, he announced the launch of the Recovery Loan Scheme from 6 April this year to replace the Government’s existing Coronavirus loan schemes. The Recovery Loan Scheme will allow any business of any size to apply for a loan of between £25,000 and £10 million backed by an 80 per cent Government guarantee.
He said that new Restart Grants will also be launched in April, making one-off payments of up to £6,000 per premises for non-essential retail businesses and up to £18,000 for businesses in the hospitality sector and others that are reopening later.
The Chancellor confirmed that the current 100 per cent business rates relief for eligible retail, hospitality and leisure businesses will continue for three months to 30 June 2021. There will then be a 66 per cent reduction in business rates for these businesses until 31 March 2022, capped at £2 million for businesses required to close on 5 January 2021 and capped at £105,000 for other businesses.
Staying with the hospitality sector, he said that the VAT reduction from 20 per cent to five per cent on many goods and services in the hospitality and leisure sectors will now be extended from 31 March 2021 to 30 September 2021. It will then move to an interim rate of 12.5 per cent until it reverts to 20 per cent in April 2022.
The Chancellor also said that the Government will double incentive payments for employers in all sectors to take on apprentices to £3,000.
Moving to the housing sector and the property market, the Chancellor said the £500,000 Stamp Duty Land Tax (SDLT) nil-rate band will remain in place for a further three months until 30 June 2021. It will then fall to £250,000 – twice its normal rate – until the end of September.
He then moved on to announce a new mortgage guarantee scheme, beginning in April 2021. The scheme will offer a Government guarantee to lending offering 95 per cent mortgages on homes worth up to £600,000.
The Chancellor said that the measures set out in the Budget amount to a further £65 billion of Coronavirus support, bringing the total since the start of the crisis to £407 billion.
The Chancellor said that the cost of Coronavirus support and the impact of the economic downturn on tax receipts meant that borrowing would reach £355 billion this year and £234 billion next year.
Reiterating his commitment to sustainable public finances, he said it was necessary to take steps to get the public finances back on track.
The Chancellor said that the Income Tax Personal Allowance and Higher Rate Threshold (HRT) will increase in line with the consumer prices index in April 2021 but will then remain at this level until April 2026, cancelling planned increases in line with inflation.
He said that thresholds for Inheritance Tax, the pensions Lifetime Allowance and the Annual Exempt Amount for CGT will remain at their current levels until April 2026.
Moving to business tax measures, the Chancellor confirmed the widely expected increase in Corporation Tax from 19 per cent to 25 per cent, which will come into effect from April 2023.
However, he also announced a new Small Profits Rate of Corporation Tax for small businesses with profits below £50,000 of 19 per cent, meaning they will see no increase. Businesses with profits of between £50,000 and £250,000 will see a tapered rate, while those with profits of more than £250,000 will pay the full 25 per cent rate.
The Chancellor moved on to say that the Government will extend the trading loss carry-back rule temporarily from one to three years. Loss-making unincorporated businesses and those that are not part of a corporate group will be entitled to relief for up to £2 million of losses in 2020-21 and 2021-22.
Those that are part of a corporate group will have caps on either £200,000 or £2 million across the group in each year.
He also announced a two-year temporary Capital Allowances Super Deduction of 130 per cent for main rate assets such as plant and machinery as well as a 50 per cent First Year Allowance for special rate assets.
Meanwhile, he said that the current VAT registration threshold of £85,000 will remain in place for a further two years from April 2022.
Turning back to the hospitality sector, the Chancellor announced that planned increases in the duties of spirits, wine and beer would be cancelled.
He also once again froze fuel duty.
The Chancellor also confirmed reviews of Research and Development Tax Reliefs and Enterprise Management Incentives.
Moving to spending announcements, the Chancellor confirmed the launch of the UK Infrastructure Bank, based in Leeds, which will support investment in public and private infrastructure projects.
He said there would be an additional £1.6 billion to support the vaccine roll-out, £1 billion in local funding for towns, and a £375 million Future Fund: Breakthrough for highly innovative companies.
Again returning to the hospitality sector, he announced the launch of a £150 million Community Ownership Fund for communities to invest in assets such as pubs, theatres, shops or sports clubs.
Finally, he announced the locations of eight Freeports, subject to simpler planning rules, infrastructure grants and lower taxes. They will be at East Midlands Airport, Felixstowe and Harwich, Humber, Liverpool City Region, Plymouth, Solent, Thames and Teeside.
Although most of the key Coronavirus business support measures had been revealed in advance of the Budget, the Chancellor confirmed that taxes will rise in the coming years, as had been widely expected.
As ever, what the Budget means for individuals and businesses will become clearer as more details of the specific policies are announced in the coming days and weeks.
It seems clear, however, that businesses and individuals are about to start meeting the costs of the Government’s Coronavirus support measures.
Link: Budget 2021
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