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UK’s Spring Budget – What It Means For You, Your Family And Your Finances

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  • £1m lifetime allowance abolished on pensions savings – although tax-free cash will be capped
  • The annual allowance has been increased from £40,000 to £60,000.
  • Money Purchase Annual Allowance has been increased from £4,000 to £10,000
  • The tapered annual allowance will now kick in when you’re adjusted earnings hits £260,000 instead of £240,000.
  • Free childcare of 30 hours a week for working parents to be expanded to children aged between 9 months and three years.
  • The rise in the energy price guarantee from £2,500 to £3,000 in April has been shelved.
  • Fuel 5p cut maintained for 12 months – and fuel duty frozen.
  • From 1 August, duty on draught products in pubs will be 11p lower than supermarkets.

Q4 2022 hedge fund letters, conferences and more

 

Financial Market Reaction

Susannah Streeter, senior investment and markets analyst, Hargreaves Lansdown:

“Fears about an escalating banking crisis overshadowed Jeremy Hunt’s giveaways, as worries swirl among investors about contagion from the collapse of SVB Financial Group (NASDAQ:SIVB). His spending policies have been largely ignored by bond markets, with gilt yields falling into expectations that central banks need to re-think their policies towards rate rises.

Even the forecast that the UK won’t enter recession this year failed to lift the pound, which dropped 0.8% to $1.206. Steps to incentivise business investment, and increase workforce participation are progress, but a spurt of growth for the UK is set to remain elusive, especially given the warning lights flashing around the global economy.’’

Budget Overview

Sarah Coles, head of personal finance, Hargreaves Lansdown:

“Hunt – the new poster boy for later life working – confounded expectations for a boring budget and made radical changes to pensions and childcare in an effort to get people back to work.”

Susannah Streeter, head of money and markets, Hargreaves Lansdown:

“Jeremy Hunt brandished the forecast from the Office for Budget Responsibility that the UK will swerve a recession this year. Things were already looking up, with consumer and business confidence rising, and spending proving much more resilient.

The rebound in the huge services sector in February had already raised hopes, and now more pieces of the jigsaw are now in place, a rosier picture is emerging. But given that the cost-of-living crisis is still proving painful, economic activity is still likely to be slow to power up and a period of stagflation, not super-charged growth, is still expected.”

UK’s Spring Budget – How We Are Affected

A Gamechanger For Pensions

Helen Morrissey, head of retirement analysis at Hargreaves Lansdown:

“The Chancellor surpassed all our expectations today by abolishing the lifetime allowance. This much maligned rule has been a check on investment performance and its removal is extremely welcome.

People still need to remain mindful of the annual allowance which has been boosted to £60,000 a year, but these changes bring a breath of fresh air to retirement planning that had been hugely complicated by the presence of restrictions on how much you can contribute and how much you can accumulate in a pension. At one stroke the Chancellor has simplified the pension system for everyone, not just higher earners.

Tax free cash will be capped at 25% of the current lifetime allowance but this still means people can benefit from over £268,000 so it’s still a powerful benefit.

Changes to the Money Purchase Annual Allowance are also welcome. People returning to the workforce after flexibly accessing their money purchase pension had been restricted to annual contributions of just £4,000 per year.

This was a major barrier for those looking to rebuild their pensions and the decision to increase it to £10,000 per year gives people significantly more room to rebuild their retirement resilience.”

Childcare Changes Are Big For Parents And Businesses

Susannah Streeter, head of money and markets:

“Funding for 30 free hours of childcare for working parents with children aged 9 months to three years was the big cuddly rabbit Jeremy Hunt pulled out of the hat for parents struggling with childcare costs.

This could transform the finances of parents, and should help stop them leaving the workforce or dramatically cutting hours because the cost of childcare is so painful. This will be introduced gradually, but will be in place by September 2025.

This could also be a game-changer in terms of increasing the UK’s growth prospects according to the Office of Budget Responsibility, which estimated that it has the biggest impact on potential output in this budget.’

Hunt countered criticism of schemes putting the sector under impossible pressure by increasing financial support for free hours by, cutting staffing ratios from 1:4 to 1:5 and introducing £600 sign-on bonuses for new childcare workers. It remains to be seen whether this will be enough to enable nurseries to offer the places at a profit, but on the face of it look like positive steps.

There’s also a tweak to childcare support through Universal Credit. 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.

Plus, for older children, there will be more funding for wraparound care in primary schools, with the aim that all parents will be able to drop children off from 8am to 6pm by September 2026.

Whether this will be enough remains to be seen. The HL Savings & Resilience Barometer shows they have average essential spending of just under £25,000 a year, compared to an average of £20,000 overall.

They’re also more likely to behind on bills and debt repayments – with 9% of couples with kids facing arrears, compared to 8% overall. Single parents are even more likely to struggle, and 23% of them are in arrears.”

Benefit Reform

Sarah Coles:

“Hunt is planning to publish a while paper, bringing in reforms that abolish work capability assessment and separate benefit entitlement from people’s ability to work, so people can always seek work without being reassessed for disability benefits. There will also be a new voluntary employment scheme for 50,000 disabled people a year.

But alongside the carrots, Hunt wielded the stick – making claiming out-of-work benefits more difficult, including a widening of sanctions for those who don’t look for job or refuse a ‘reasonable job offer’, stricter requirements for parents to look for work or take on more hours, and a higher earnings threshold at which you no longer need to visit a work coach.

For those who rely on benefits to make ends meet, it’s not going to make life any easier.While tougher benefits policies may force more people to work more hours, it begs the question whether this will be a particularly enthusiastic, engaged and productive workforce.

Any approach that effectively addresses the level of economic inactivity in the UK needs to properly address the causes. There was some additional support with musculoskeletal and mental health, but this is a drop in the ocean.

The BMJ says 7.21 million people were waiting for NHS treatment in January this year, the average wait time for treatment has hit 14.6 weeks, and over 375,000 people have been waiting for over a year – 231 times as many as pre-pandemic.

Solving this problem isn’t going to be easy, but it may be the only way to significantly move the dial, so that the third of people on long term sickness who would like to find a job can get the care they need to enable them to return to work.”

Energy Bills Zapped

Sarah Coles:

“The shelving of the planned rise in the energy price guarantee will come as an enormous relief for the millions of people who are already struggling to pay their bills, However, plenty of people are already struggling and will need to cope with the loss of their monthly rebates too from April.

Already half of people are finding it difficult to pay their energy bills and more than one in 20 have fallen behind. For these people, the removal of the £67-a-month discount is going to mean even bigger bill nightmares.

The more positive news is that when wholesale prices fall enough to take the energy price cap below £2,500, we will revert to that instead, so our bills will fall. At the moment, this is expected to happen in July, when the cap is forecast to be £2,100.

For those on pre-payment meters there will also be some respite, with the axing of the pre-payment premium set to be announced in the Budget. It’s hard to believe we have lived with a system for so long where those who can least afford their energy bills have had to pay more for it than anyone else.”

Duties: Phew For Fuel And Cheers For Pints

Sarah Coles:

“Duties are one area where the government can raise or cut prices at a stroke, so it’s heartening to see they have stepped in on behalf of drivers. Frankly, after such a long freeze of fuel duty it would have been a surprise if they rose prices right now.

Hunt also decided to extend the 5p duty cut that was due to come to an end – for another year. Petrol prices have fallen back significantly from the peak, but are still way ahead of the levels we saw just before the pandemic, so now was not the time to add another 5p on top of this.

The tax on alcohol will rise 10.1% in August, but there will be a separate rule for draught beers in pubs, which will mean the duty on draft pints is 11p lower than in supermarkets. There’s also the hope that the delay in rising duty will protect the nation’s drinkers while inflation is so high, and only kick in when it has started to fall back.

For smokers, however the pain will be immediate, and the duty on cigarettes will rise by RPI plus 2%, which is almost 15% and could add around £1.75 to the price of cigarettes.”

Disappointment As LISA Penalty Remains Unchanged

Helen Morrissey:

“It is disappointing that the Chancellor has opted not to reform the Lifetime ISA regime. The 25% penalty on early LISA withdrawals penalises people who have tried to build their financial resilience but then need to access their money during difficult times.

People may benefit from a 25% bonus on the way in, but the 25% penalty not only takes away this bonus, it also takes a chunk of their hard-earned savings too. Reducing it to 20% as it was during the pandemic would negate this and make LISAs a more attractive product for people looking to build up retirement savings.

Similarly, those using a LISA to help save for their first home will be disappointed to see there has been no movement on the £450,000 limit on the value of a first home bought with a LISA. This limit has not been revised since LISAs were first introduced and in the meantime, house prices have soared. First time buyers in London will find it particularly difficult to find a first home below this amount and could incur penalties as a result.”

 

Light On Meaningful Support For The Environment

Laura Hoy, Equity and ESG Analyst at Hargreaves Lansdown:

“The Budget offered a few environmental and social boons, but it was ultimately a disappointment to see the government gloss over meaningful reforms.

We’d hoped Hunt would at least offer renewables generators the same lifelines he’s extended to oil and gas companies with investment-related tax breaks to the EGL that are on a level playing field with those built into the existing windfall tax.

The support that was announced, a £20bn package for carbon capture and storage, serves as a crutch for fossil fuel companies and does nothing to incentivise investment in renewables.

While Hunt was careful to express a desire to help lower energy costs and ensure energy security, he’s done nothing to attack one of the root causes of the problems—Britain’s leaky buildings. Th

Jeremy Hunt’s reliance on nuclear as a sustainable energy source is also troubling. While it’s good news this Government is supporting diversification away from fossil fuel-derived energy, it’s not the silver bullet the Budget statement suggests. Positioning nuclear at the centre of the government’s so-called sustainable energy tax breaks isn’t quite as green as Hunt and his party colour it.”

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