The Chancellor of the Exchequer has announced further support in his Budget for people struggling with the cost-of-living crisis.
Jeremy Hunt’s spending and tax plans for the year ahead include continued help for households to help with spiralling energy bills as part of a raft of measures aimed at kickstarting the economy.
Hunt says his Budget will spur economic growth – but what does it mean in terms of personal finance to the average person on the street? Read on to find out more about the key points of the Budget and how it might impact you.
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Continued support for energy bills
Following a determined campaign led by consumer rights champion Martin Lewis and a number of UK charities, Hunt announced that the energy price guarantee would remain at £2,500 for a further three months.
It had been scheduled to rise to £3,000 – which would have meant further price hikes for customers – but Hunt says it will stay at its current level of £2,500 until July. Hunt recognised that people were in “real distress” with rocketing energy bills.
He said the government should “always remain ready to help when we can”, adding that the measure represented £160 in savings for the average family.
Hund pledged extra support for customers with prepayment meters to bring their higher utility expenditure in line with people paying by direct debit.
In terms of business customers, he has announced a £63 million fund to help leisure centres pay their energy bills, plus £100 million funding for charities to combat their soaring energy expenditure.
Scrapping the pension lifetime allowance
Pension reforms were a big part of the March Budget. The biggest news was a decision to improve tax allowances, helping workers to save for their future. Critics said there had been no positive pensions reforms for almost a decade.
The majority of allowances had been frozen or reduced for years, with the tax benefits restricted. The pension lifetime allowance – which stands at £1.073 million – is being scrapped altogether. This means your pension will not be capped at all and you can have the full tax benefits.
Under the current lifetime allowance, any sum above the allowance will be taxed at 25% if taken as income, or 55% if drawn as a lump sum. Now people can save without risking a breach of the limit and having to pay a large tax bill.
There is one negative point about the new rules regarding pensions, however. The amount you can withdraw as a tax-free lump sum is to be capped at 25% of the current lifetime allowance, which is £268,275.
The chancellor believes the current tax laws are pushing people out of the workforce. In particular, in the NHS, senior doctors are taking early retirement to avoid a hefty tax penalty on defined benefit pensions.
Hunt hopes the new rules will encourage people to work for longer or may tempt those who have already retired back into the workforce. He aims to stem the labour shortages that are currently slowing down economic growth in the UK.
Some city analysts have suggested the reforms may have the opposite effect and encourage workers to retire earlier – as they will now be able to build up a savings pot faster.
Support for childcare
The government has bowed to continued pressure to help with childcare costs, as the UK has some of the most expensive in the world.
A lot of parents who have young children have said it makes no financial sense to return to work, as their childcare costs would reduce their income significantly – in some cases making them worse off.
Hunt has announced a £4 billion family support package, providing 30 hours’ free childcare per week for families with children aged from nine months to five years old. This is a saving of an estimated £6,500 a year in childcare costs for the average UK family.
In order to qualify for the benefit, the parents must earn less than £100,000 a year.
The state of the economy
The state of the UK economy was a big talking point during the Budget speech. High inflation has been a major issue for more than a year now. Recent forecasts have suggested the economy may improve more quickly than previously anticipated.
Economists have cautiously suggested inflation might fall from its current 10.7% to 2.9% by the end of 2023. This means technically, the UK would avoid a recession.
However, the Office for Budget Responsibility has still predicted the UK economy will shrink 0.2% this year.
In the long-term, the outlook is marginally more optimistic. The OBR suggests the economy will grow by 0.8% in 2024, a further 2.5% in 2025 and 2.1% in 2026.
In terms of unemployment, the OBR has revised its earlier predictions – made in autumn 2022 – and now expects 170,000 fewer adults will be unemployed by the end of 2023.
Motorists received a small boost with the news the government was to maintain the 5p fuel cut for another 12 months, saving drivers an estimated £100 per year.
How are people coping with the current economy?
Research has shown cash-strapped UK residents are having to take out loans to pay utility bills. Even an unexpected bill or other household expense of just £300 would be too much for many people to afford, as they’re on such a tight budget, according to survey results published in The Times.
Shocking statistics from 2022 showed the average personal debt in Britain was £33,410. This equates to 107% of the average adult’s income. The average unsecured debt is £3,743 per person. The figure varied greatly, depending on age and region.
Water, gas and electricity arrears are adding to the burden of debt. The average debt per adult has increased by £498 since the fourth quarter of 2019.
The debt level is highest in homes where the head of the household is aged between 18 and 34 years old. They have an average household debt of £10,400 – and this doesn’t include the mortgage.
For some people, taking out a logbook loan secured against their vehicle can help them out of a short-term cash crisis.
Customers who may not be able to successfully apply for credit through traditional channels can raise short-term finance and are able to carry on driving their vehicle until the loan is repaid.
Warning: Late repayment can cause you serious money problems. For help go to moneyhelper.org.uk.