UK Budget 2023: Key points and provisions

Chancellor Jeremy Hunt has unveiled the contents of his first Budget in the House of Commons.

It had a focus on prompting those who have left their jobs to return to the workforce, and boosting business investment.

Here is a summary of the main announcements.

Taxation and wages

  • Cap on amount workers can accumulate in pensions savings over their lifetime before having to pay extra tax (currently £1.07m) to be abolished
  • Tax-free yearly allowance for pension pot to rise from £40,000 to £60,000 – having been frozen for nine years
  • Fuel duty frozen – the 5p cut to fuel duty on petrol and diesel, due to end in April, kept for another year
  • Alcohol taxes to rise in line with inflation from August, with new reliefs for beer, cider and wine sold in pubs
  • Tax on tobacco to increase by 2% above inflation, and 6% above inflation for hand-rolling tobacco
  • Government subsidies limiting typical household energy bills to £2,500 a year extended for three months, until the end of June
  • GBP 200m to bring energy charges for prepayment meters into line with prices for customers paying by direct debit – affects 4m households
  • Commitment to invest £20bn over next two decades on low-carbon energy projects, with a focus on carbon capture and storage
  • Nuclear energy to be classed as environmentally sustainable for investment purposes, with promise of more public funding
  • GBP 63m to help leisure centres with rising swimming pool heating costs, and invest to become more energy efficient

Jobs and work

  • 30 hours of free childcare for working parents in England expanded to cover one and two-year-olds, in a bid to help them work more
  • Families on universal credit to receive childcare support up front instead of in arrears, with the £646-a-month per child cap raised to £951
  • £600 “incentive payments” for those becoming childminders, and relaxed rules in England to let childminders look after more children
  • New fitness-to-work testing regime to qualify for health-related benefits
  • Funding for up to 50,000 places on new voluntary employment scheme for disabled people, called Universal Support
  • Tougher requirements to look for work and increased job support for lead child carers on universal credit
  • More places on “skills boot camps” to encourage over-50s who have left their jobs to return to the workplace
  • Immigration rules to be relaxed for five roles in construction sector, to ease labour shortages

Economy and public finances

  • Office for Budget Responsibility predicts the UK will avoid recession in 2023, but the economy will shrink by 0.2%
  • Growth of 1.8% predicted for next year, with 2.5% in 2025 and 2.1% in 2026
  • UK’s inflation rate predicted to fall to 2.9% by the end of this year, down from 10.7% in the last three months of 2022
  • Underlying debt forecast to be 92.4% of GDP this year, rising to 93.7% in 2024

Business and trade

  • Main rate of corporation tax, paid by businesses on taxable profits over £250,000, confirmed to increase from 19% to 25%
  • Companies with profits between £50,000 and £250,000 to pay between 19% and 25%
  • Companies able to deduct investment in new machinery and technology to lower their taxable profits
  • Tax breaks and other benefits for 12 new Investment Zones across the UK, funded by £80m each over the next five years
  • Reduced paperwork for international traders, who will also be given longer to submit customs forms under streamlined rules

Other measures

  • Commitment to raise defence spending by £11bn over the next five years
  • Prison sentences for those convicted of marketing tax avoidance schemes
  • An extra £10m over next two years for charities helping to prevent suicide
  • Streamlined approvals process promised for new medical products
  • GBP 900m for new super computer facility, to help UK’s AI industry

Key decisions made before the Budget

Remember, some of the biggest decisions affecting your finances in April and beyond have already been made.

It was in November’s Autumn Statement that Mr Hunt said benefits and the state pension would rise in April by 10.1% and there will also be further cost-of-living payments delivered in the coming year.

Really importantly, income tax bands – or thresholds – are already frozen until 2028. That means any kind of pay rise could drag you into a higher tax bracket. Even if it does not, it will almost certainly mean a greater proportion of your income is taxed.

You start to pay income tax on annual earnings of more than £12,570, charged at 20%. You then pay tax of 40% on earnings over £50,270 a year, although the tax bands are different in Scotland.

Another announcement made in the last big statement is that the highest rate of income tax – which is 45% currently on earnings above £150,000 – will be paid on earnings of more than £125,140 from April. That means the highest paid could pay hundreds of pounds more a year in income tax.

It was previously announced that the minimum pay rate for those aged 23 and above – the National Living Wage – will rise to £10.42 in April from £9.50 an hour – a move that affects about two million people. It is employers who must shoulder this cost.

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