“We shouldn’t expect much in the way of rabbits or hats in this Budget: Jeremy Hunt needs to remain boring and predictable to avoid unsettling the markets. And to make matters even more mundane on the day, we were drip-fed a number of key announcements over the weekend.
We now know a good chunk of what’s set to be announced, and a number of other measures seem likely. However, so far, we still haven’t had news of some vital changes we need to see.” – Sarah Coles, head of personal finance, Hargreaves Lansdown
Q4 2022 hedge fund letters, conferences and more
6 Announcements We Expect From UK Budget
Relief on Energy Bills
Sarah Coles: “It’s pretty much nailed-on that the rise in the energy price guarantee from £2,500 to £3,000 in April will be shelved. This is going to come as a huge relief for the 48% of people who are already finding it difficult to pay the bills, and the 6% who have fallen behind.
A rise would have pushed millions of people closer to the edge financially. There will also be an end to the horrible system where those who can least afford it pay the most for their energy, because from July people on meters will no longer pay a premium – saving 4 million cash-strapped households around £45 a year.”
Pensions
Helen Morrissey, head of retirement analysis at Hargreaves Lansdown: “Rumours are swirling that Jeremy Hunt will announce an increase in the lifetime allowance, with the possibility that the annual allowance could also increase.
Such measures would be welcome – both allowances have been frozen for several years, with an increasing number of people being caught up. It has been a huge factor in senior NHS doctors and consultants choosing to retire early. However, we would like to see the Chancellor take a wider look at the pension tax system.”
Childcare
Sarah Coles: “There’s some good news on childcare. At the moment people have to fork out hundreds of pounds to pay for care in order to go back to work – and they don’t get reimbursed for weeks. In future, the support will come up-front, so parents don’t need to go into debt.
The limit on maximum support is also very likely to rise after being frozen at £646 a month for years.”
Back To Work
Sarah Coles: “There will be reforms so that people with disabilities can work for a few hours without being reassessed for disability benefits. There has also been talk of tax breaks to enable employers to offer more preventative measures, such as annual health checks, to help keep employees healthy and working. However, these are yet to be confirmed.
There are a few carrots to encourage people back to work, but there’s also liberal use of the stick. We’re expecting a widening of sanctions for those who don’t look for job. People receiving benefits will be expected to go to more meetings with work coaches and skills bootcamps. The earnings threshold at which you no longer need to visit a coach will rise.
Partners of working people will be expected to hunt for a job, and parents will face stricter requirements to look for work or take on more hours. It may well mean more people are forced to work, but it will do it by making life even harder for those on the lowest incomes.”
Susannah Streeter, head of money and markets, Hargreaves Lansdown: “Jeremy Hunt’s goal to improve education and employment prospects will require significant new funding to really move the dial on the issues holding back productivity.
Getting the 6.6 million people who are economically inactive back to work for the duration, rather than a flash-in-pan stint to mitigate the cost-of-living crisis, will require fresh ideas and re-training programmes.”
Public Sector Pay
Susannah Streeter: “Improving literacy and numeracy won’t be easy when teachers are walking out on Budget Day over pay and conditions, while clearing NHS backlogs will prove increasingly difficult if healthcare workers stage fresh walkouts.
The surprise £5.4 billion surplus in government finances in January should give more room for manoeuvre when it comes to finding a compromise on public sector pay demands, so we could see some form of agreement outlined in the budget. It would certainly grab the headlines.”
Duties
Sarah Coles: “We’re expecting yet another freezing of fuel duty, which has become such a regular feature in recent Budgets that it would be a surprise to see it rise. Jeremy Hunt is also likely to extend the 5p duty cut that was due to come to an end.
The tax on alcohol was due to rise, but this is likely to be pushed forward six months to August. Meanwhile, the tax on cigarettes is expected to rise again.”
5 Urgent Changes We Want To See
Pension Reform
Helen Morrissey: ”We would like to see the Chancellor go further than changing pension allowances, and call for a full-scale review of the pension tax relief system. Endless tinkering over the years has resulted in a complex system that is difficult to navigate. As part of this we want to see a review of the Money Purchase Annual Allowance (MPAA).
At a time when the Chancellor is urging older people to return to work the MPAA restricts people who have flexibly accessed their money purchase pension to contributions of just £4,000 per year. This gets in the way of people trying to do the right thing and rebuild their pension after time out.
We recently signed an industry letter calling for the MPAA to revert to £10,000 per year. This would help a lot of people, but a review could go further.
The MPAA was introduced to stop ‘recycling’, where people access their pension and then re-invest contributions for another round of tax relief, but the same thing could be achieved with anti-recycling rules, which only kick in when someone has accessed their pension with the express intent to recycle the cash.”
Support With Childcare
Susannah Streeter: “The increase in childcare funding for lower income families via universal credit will be hugely welcome but middle-income earners are also struggling under the weight of full-time nursery fees of almost £15,000.
With two children in nursery, you would need to earn £38,500 to have £30,000 in your pocket after tax, so clearly it’s not only those on Universal Credit who are kept out of the workplace by these horrendous costs. Extra tax breaks or raising the threshold on the child benefit taper could make a significant difference in persuading more women in particular to return to the workforce.”
Longer-Term Support For Tech Industry
Susannah Streeter: “The UK tech industry will be reassured but it’s still reeling from the collapse of SVB, which almost saw their financial lifelines cut off. The white knight arrival of HSBC has calmed nerves but it’s even more crucial that they are offered more support in terms of funding over the longer term.
Competition for inward investment is heating up with subsidies being dangled by nations across the world. It is crucial that the gleaming nuggets of potential in innovative industries like renewables, AI and life sciences are nurtured with fresh incentives.
With the EU and the US introducing big subsidy packages for clean tech, Jeremy Hunt will need to step up with new ideas ensure the UK is competitive, particularly given how fragile the eco-system looks right now. “
Lifetime ISA Reform
Helen Morrissey: ”Lifetime ISAs are in need of reform. The 25% bonus is hugely attractive and really helps build savings, but if money is withdrawn for a reason other than to buy a first home or for retirement, then you face a 25% penalty – which not only claws back the Government bonus, but also applies an additional penalty.
We believe the Lifetime ISA penalty should be reduced to 20% permanently. It is unfair that people who are trying to do the right thing by building savings are being penalised this way, particularly now when difficult circumstances mean many people may need to access their savings to meet day-to-day living costs.
The £450,000 cap on the value of a first home to be bought with a LISA has not changed since the product was introduced in 2017.
However, property prices have soared since then up £75,687, just over a third, and it’s fair to say someone living in London would struggle to find a first home for less than this amount. If the home bought exceeds this amount you get hit with a 25% penalty charge. We would like to see the cap increased in line with house price growth.”
Streamline The ISA Range
Sarah Coles: “We need a balance between offering enough choice for people to find an ISA that suits them and providing so many options that it’s difficult to choose.
If Jeremy Hunt was to roll Child Trust Funds into Junior ISAs; bring Help to Buy ISAs into the Lifetime ISA; and combine Innovative Finance ISAs with Stocks and Shares ISAs, it would keep people’s options open while striking a better balance.
It would also make sense to allow people to subscribe to as many ISAs of the same type as they like in any year.
There are no restrictions on the number of different pensions you can contribute to each year (as long as you stay within the annual allowance) so why restrict the number of ISAs? This would also iron out needless confusion – such as the fact you can’t currently put money in a Help to Buy ISA and a separate cash ISA in the same year.”
