Today’s ‘budget for growth’ was designed to help tackle the UK’s ongoing productivity problem. Quite simply, not enough people are working, not enough businesses are investing and it’s making the country less competitive.
So, the Chancellor Jeremy Hunt moved to shake up pension rules that penalise professionals, extend childcare provision and encourage investment.
There was good news for pension savers as the Chancellor set his sights on the tax-free allowances which had been frozen since 2020.
The Annual Allowance – the amount of money that people can put into their pension every year without paying tax on it – was increased from £40,000 to £60,000.
But the big surprise was that the £1.07 million Lifetime Allowance would be abandoned altogether, in a move the Chancellor said would mean an estimated 80% of NHS doctors will not receive a tax charge.
We’ve been calling for action on these allowances for some time now to help doctors, dentists and teachers stay in work for longer without facing a big tax bill, at a time when their services are so desperately needed.
Alec Collie, Head of Medical at the Wesleyan Group, said: “From a tax perspective, this budget is just what the doctor ordered.
“The risk of punitive tax charges – primarily from exceeding the annual allowance – has led to some of our most experienced doctors leaving the National Health Service, reducing their hours or dropping out of the NHS Pension Scheme and forfeiting their own retirement saving opportunities.
“It’s also stung some of the longest serving teachers and dentists, so this a welcome measure that will hopefully give today’s students more confidence in their financial future as they embark on their professional careers.
“These are problems we’ve been highlighting for some considerable time, and we’re glad the government has taken action.”
The Money Purchase Annual Allowance – which allows people who’ve already accessed some of their personal pension to top it back up again – was also increased from £4,000, back to its original level of £10,000.
This was a disincentive for many who wanted to return to work because it was a barrier to rebuilding their retirement savings, so today’s announcement will allow them to work more flexibly, supporting retention and helping address workforce shortages.
The Chancellor announced a new 100% First Year Allowance to replace the outgoing super deduction, which let companies deduct up to 130% of the value of investments from their profits before Corporation Tax was calculated.
The new 100 per cent capital allowance is slightly less generous, but the three-year scheme will certainly help firms plan ahead with greater certainty.
Iain Stevenson, Head of Dental at the Wesleyan Group, said: “Dentists – and patients – will benefit from the government’s proposals to offer corporation tax relief on new investments.
“Practices are always looking to see how they can invest to improve quality of service for their patients. Under this scheme, they’ll be able to offset some of their tax bills for investment in equipment.”
But there was disappointment that Corporation Tax will still rise from 19% to 25% in April as planned, despite many arguing against it.
Cost of living
A big reform of childcare policy is designed to help boost the economy by encouraging more parents back to work while also alleviating pressures on household budgets, with the average annual cost of a full-time nursery place now nearly £15,000.
Three and four-year-olds are already entitled to at least 15 hours of free childcare per week for 38 weeks of the year, increasing to 30 hours a week if their parents are working.
This has now been extended to children aged nine months to three years, though a lack of capacity in nurseries means it will take two years to roll out in full.
And a planned £500 hike in average energy bills that was due to arrive in March has been abandoned, with the Chancellor acknowledging: “High energy bills are one of the biggest worries for families.”
Instead, as expected the Energy Price Guarantee will remain at £2,500 for a typical household in England, Wales and Scotland until the end of June.
And we can expect more good news as wholesale gas prices are now in decline and bills are forecast to fall further later in the year.
Finally, a 5p per litre cut to Fuel Duty, which was imposed in the Budget in in March last year, was due to come to an end in March, but was extended for another year.
Simon Rake, Head of Education at the Wesleyan Group, said: “Rising costs are making it difficult for many to save day-to-day or put money aside for retirement.
“For those who can afford to keep saving, it’s imperative that they make their money work as hard as possible. This includes making the most of ISA allowances to keep their investment growth or interest payments tax-free.”