Spring Budget 2023: Experts respond
Sian Steele, Head of Tax at wealth manager and professional services firm Evelyn Partners, says that with little or no action on personal taxation, it is the changes to pension tax allowances that hold most importance for earners, savers and investors:
“The headlines on the taxation of personal wealth and income had all been made at the Autumn Statement, and the Spring Budget this year has been relegated to some tinkering around the edges. Indeed, the Chancellor had effectively shackled himself from doing anything adventurous with a rigidly prudent fiscal stance set out last November, so that even some wiggle room in the public finances couldn’t summon a rabbit from the hat.
“One pleasant surprise in this Budget is the substantial and welcome extension to childcare support, but at £4billion it doesn’t rank among the great Budget giveaways.
“The abolition of the pensions Lifetime Allowance was something of a shock, given that leaks had suggested it was being raised to £1.8million. Alongside the increases to the annual allowances that had been flagged, these are the biggest changes to the personal tax landscape announced today, creating greater scope and flexibility for tax-efficient pension savings. The raising of the Money Purchase Annual Allowance to £10,000 from £4,000 relieves a slightly obscure ‘tax trap’ that can catch out even financially astute retirees returning to work – as it now means that those who have already accessed their pensions flexibly can save more in future years to rebuild their pots.
“The threshold for the tapered annual allowance was raised from £240,000 to £260,000, with the tapered annual allowance itself simultaneously raised from £4,000 to £10,000 and while these changes are welcome, this taper is something of a complex distortion that penalises the highest earners – some of whom might have purposefully left the bulk of their retirement saving until late in their career when their earnings peak. Moreover, a sting in the tail for those who build pension pots above the current LTA is that the 25% tax-free lump sum has been capped at a level equal to 25% of the current LTA of £1,073,000 – a sum of £268,275 that will remain frozen, it seems indefinitely.
“The expected lack of announcements around personal taxation should not deflect attention away from the big changes announced at the Autumn Statement that will take effect on 6 April and again – U-turns allowing – in the 2024/25 tax year. Frozen and falling income tax thresholds and reduced capital gains and dividend tax allowances have widespread implications for how households structure their finances.
“These changes underscore the importance of using ISA and pension allowances and should prompt almost everyone to take a look at their tax situation, which in many cases can benefit from the expert analysis of a tax adviser.”
Alan Thomas, UK CEO at insurance provider Simply Business, comments on the outcome of the Chancellors Spring Budget for the UK’s small businesses “Small business owners are particularly vulnerable at the moment, and the Spring Budget is seen by many small business owners as an opportunity for the government to express its support for SMEs and the self-employed – a community which represents one of the most important contributors to the UK economy.
“While important measures have been put in place, such as an increase in the Annual Investment Allowance to £1m and offering greater support in terms of childcare provisions, the fear remains that these new measures will only scratch the surface. The cost of energy is front of mind for the majority of small businesses, with over half (54%) saying this is the single greatest threat to their business in 2023. The 3-month continuation of the Energy Price Guarantee will be welcome news, but SMEs up and down the country will still have very real concerns as to what comes after that.
“Our research indicates that over a quarter (26%) believe that they, quite frankly, will not be able to pay their bills in 2023. Despite the positive measures introduced, the worry is that many small businesses will not have seen these fears fully extinguished. Accounting for over 99% of all British businesses and 48% of employment, our economy’s recovery is directly linked to SMEs prosperity, and we hope their continued support will present a win-win situation for UK SMEs and the Chancellor’s aspirations for economic growth.”
James Jones-Tinsley, Chartered Financial Planner & Self-Invested Technical Specialist at Barnett Waddingham, comments: “The abolition of the lifetime allowance from April 2024 is the opposite of a band-aid on a bullet wound; it is an operation on a graze. The rumours of an increase in the allowance raised questions around protections and people who had used their allowance already. The removal of the allowance altogether answers those questions, but raises many more.
“The Chancellor must offer clarity, and quickly, on what happens to retirements currently being processed, and the impact assessment on retirement savings. Whether behaviours change and people get back to work will depend on if they think the change is here to stay, or whether future Governments can reintroduce the allowance at a later date. It is also unclear why the charge is being removed in April 2023 but the allowance wont be abolished until April 2024 – if the abolition of the allowance requires primary legislation to pass, Labour may look to stonewall the bill as it favours the wealthy. In that case, it may well become an unfulfilled promise in the next few months.”
The government will increase the Money Purchase Annual Allowance from £4,000 to £10,000 and the minimum Tapered Annual Allowance from £4,000 to £10,000 from 6 April 2023. The adjusted income threshold for the Tapered Annual Allowance will also be increased from £240,000 to £260,000 from 6 April 2023.
Commenting on this, James adds: “The hike in allowances is good news, though it’s a shame the Chancellor didn’t mimic his drastic Lifetime Allowance solution and scrap them altogether. This would have helped more people than the Lifetime Allowance change will, and specifically those individuals who have semi-retired and the Government would like to get back to work.”
Daniele Antonucci, Chief Economist & Macro Strategist at Quintet Private Bank, said:
“While the Budget itself isn’t particularly surprising in and by itself, the macro and fiscal forecast does reveal that the UK economy remains under pressure. Our base case remains recession.
The Office for Budget Responsibility, the fiscal watchdog, now expects a 10% drop in house prices. This is somewhat more pronounced than the previous prediction back in November, when the mortgage market had been impacted by the high-borrowing and spending mini-budget. The OBR expects property transactions to fall by 20%.
Interest rates and inflation are squeezing disposable income, which is now set to drop by almost 6% over the next two years, marking the steepest fall in over half a century.
The public finances look under pressure too. Because a good proportion of government debt is linked to inflation, the share of revenues consumed by debt servicing will rise significantly, from 3.1% in 2020-21 to 6.2% in 2021-22 and 7.8% in 2027-28.
Given all this, the headroom to achieve the target to have debt falling, as a share of GDP, in the 2027-28 financial year is very narrow and based on somewhat optimistic assumptions in a few areas such as fuel duty rates.
Importantly, the lifetime allowance on how much people can save in their pension funds tax free will be abolished, and the annual allowance (the amount that can be put in the fund tax-free) will increase by £20,000 to £60,000. There’s no cost in 2022-23. But by 2026-27 and 2027-28, this measure will cost more than £1 billion a year.