How will Jeremy Hunt's budget affect me? - Times Money Mentor (2023)

Jeremy Hunt’s budget announced changes on energy bills, childcare and pensions on Wednesday, amid a backdrop of industrial action, inflation and a cost-of-living crisis.

The chancellor’s 2023 spring budget focused on getting ‘economically inactive’ over-50s and parents back into to work. He outlined changes to freechildcare and abolished the lifetime tax-free pensions allowance.

Other key changes included a reform of sickness benefits andextended energy bill supportfor all households.

Based on Office for Budget Responsibility (OBR) forecasts, Hunt also said the UK is no longer expected to go into recession this year.

Here’s our analysis of the chancellor’s key announcements:

  • Free childcare for all under-5s
  • What’s happening to energy bills support?
  • Prepayment energy meter bills to be cut by £45
  • Fuel duty
  • Disability benefits
  • Getting over-50s back to work
  • Lifetime allowance axed
  • Alcohol and cigarette prices
  • Corporation tax rise
  • What’s happening with inflation?

Free childcare for all under-5s

The UK’s childcare system is the most unaffordable in the developed world.

According to children’s charity Coram, the average price of a full-time nursery place for a toddler under two is now £14,836 per year.

These spirallingchildcare costsare stopping mothers from returning to work and causing many to give up their careers completely. Around 435,000 parents in England with children under three are currently inactive due to caring responsibilities.

Right now, working parents with three and four-year-olds are eligible for30 hours of free childcareper week. This scheme is being extended – but not until next year.

From April 2024, working parents of two year-olds will be able to access 15 hours of free childcare per week. This will then be extended to working parents of nine-month to two-year-olds from September 2024.

From September 2025, all eligible working parents of children aged nine months up to three years will be able to access the full 30 free hours per week.

The latest policy change will only apply to households where all adults in the household work at least 16 hours. The provision also only applies within term-time, so 38 weeks of the year.

The government will also pay working parents on universal credit their childcare support upfront. These families will also now be able to claim £951 for one child and £1,630 for two children.

What’s happening to energy bills support?

The energy price guarantee (EPG) has been extended at its current level for an extra three months. This means households will continue to pay an average of £2,500 a year for their energy bills until the end of June.

The guarantee was to become less generous from April, with bills set to rise by 20% at the same point that universal rebates would end. Combined, it would have added an extra £900 to average annual energy bills.

But the extension to the EPG will save the average household around £160, according to the Treasury.

Nevertheless, the £400 universal energy payment will not be renewed, meaning households’ costs will still rise in the short term.

Energy is regulated separately in Northern Ireland, where bills will be held at £1,950 per year for an average household.

During Jeremy Hunt’s budget speech he said: “High energy bills are one of the biggest worries for families, which is why we’re maintaining the energy price guarantee at its current level.

“With energy bills set to fall from July onwards, this temporary change will bridge the gap and ease the pressure on families, while also helping to lower inflation too.”

A three-month extension will cost the government about £4 billion, but falling wholesale energy prices mean that so far the EPG hasn’t cost the government as much as had been expected.

That said, due to those price falls, it has lost about £7 billion in revenue from the energy windfall tax and corporation taxes on oil and gas companies.

Prepayment energy meter bills to be cut by £45

Prepayment energy charges will be brought in line with customers who pay by direct debit amid controversy over how vulnerable households are being charged.

Households which have prepayment meters are typically vulnerable or on low incomes.

But they pay more because energy firms pass on the costs of managing the meters.

Under new rules, the rates will be made equal from 1 July 2023. In Jeremy Hunt’s budget, he estimated this could save four million struggling households around £45 a year on energy bills.

The extra charges will instead be met under the government-funded energy price guarantee at a cost of £200 million.

Fuel duty

Fuel duty is supposed to rise in line with the retail price index (RPI) measure of inflation every year. However it has been scrapped for the past 12 years.

The chancellor has confirmed that it will stay frozen for another 12 months. This will save drivers 7p on every litre of fuel.

The temporary 5p fuel duty cut – announced by ex-chancellor Rishi Sunak – will also be extended for another year.

Combined, this equates to a saving of around 12p a litre on fuel. The Treasury estimates this will save the average driver £100 over the next year.

Petrol prices have fallen back significantly from a peak last summer.

According to the RAC, fuel prices have dropped from a high point of over £1.91 per litre in July to around £1.48 today – similar to the level we saw about a year ago. However, it’s still higher than the levels we saw just before the pandemic, of around £1.25.

Disability benefits

Jeremy Hunt’s budget included the announcement of a white paper that is being published on disability benefits.

He also plans to abolish the work capability assessment while eligibility for the health top-up in universal credit will be passported via the personal independence payment benefit.

Hunt will also reboot the benefits system, so that sick people who return to work part-time can continue claiming some sickness benefits.

He says there will be a new, voluntary employment scheme for disabled people where the government will spend up to £4,000 per person to help them find appropriate jobs and put in place the support they need. It will, he claims, fund 50,000 places every single year.

Getting over 50s back to work

Unemployment may stand at a low of 1.3 million, but there are still 1.1 million vacancies waiting to be filled.

To tackle this, the government wants to get more people back into work. The focus here is on those who are “economically inactive”, that is workers who are defined as neither working nor looking for work.

The number of “inactive” people has jumped by more than half a million since the onset of the pandemic. The vast majority are over-50 and people with long-term health conditions. The total figure now stands at 6.7 million.

This is harming economic growth as employers are struggling to find staff, resulting in higher pay to attract workers and therefore higher prices for consumers. The number of over-50s alone has risen by almost half a million since the pandemic.

Jeremy Hunt’s budget outlined the introduction of new measures to encourage and retain older staff in the workplace. This will include an expansion of its “midlife MOT” scheme, offering financial health checks to 50 to 64-year-olds.

Lifetime allowance for pension savings scrapped

One of the biggest moves announced in Jeremy Hunt’s budget was the scrapping of the lifetime allowance on tax-free pension savings. The move is meant to encourage people to keep working.

The allowance represents the amount you can build up in your private pension pot before incurring any charges. This is currently £1.07 million.

But there is a concern that the limit is driving doctors and other professionals into retirement.

The policy aims to stop people from reducing their hours or retiring early to avoid tax penalties.

The annual allowance, which is the amount people can save each year before incurring tax, will also rise from £40,000 to £60,000. The combined cost of the increased allowances is expected to be £2 billion a year.

The lifetime allowance has been cut heavily since it was introduced in 2006, dragging large numbers of professionals into a tax trap. It was due to remain at £1.07 million until 2026.

Once you start taking money from your pension, something known as the money purchase annual allowance kicks in. This limits the amount you can pay into your pension. The current allowance is £4,000 but this will rise to £10,000 from April 2023.

Income tax for carers

The amount of income tax relief available to foster carers and shared lives carers is being extended.

The threshold of income at which qualifying carers begin paying tax on care income will be increased to £18,140 per year plus £375 to £450 per person cared for per week over the next tax year.

Alcohol and cigarette prices

The tax on alcohol will rise 10.1% in August, but there will be a separate rule for draft beers in pubs, which will mean the duty on draft pints is 11p lower than in supermarkets.

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.

Hand-rolling tobacco will increase by 19%. These changes will take effect from 6pm on 15 March 2023.

Corporation tax rise

The planned rise in corporation tax will go ahead, kicking in from 6 April.

The shake-up will see businesses pay more corporation tax, which will climb from 19% to 25%. This is expected to bring in an extra £18 billion for the Treasury.

The tax rise will hit businesses with profits of more than £250,000. Companies with profits of between £50,000 and £250,000 will get marginal relief.

For those with profits of less than £50,000, there will be no change. These businesses will continue to pay corporation tax at 19%.

What’s happening with inflation?

The rate of price rises, or inflation, is forecast to fall to 2.9% by the end of 2023, according to the OBR.

This will bring relief to households who have battled prices rises of over 11% in the past year.

Inflation is currently 10.1%, significantly higher than the Bank of England’s target of 2%.

Last November, the OBR predicted that the average inflation rate for 2023 would be 7.4%. It now expects 2.9% by the end of 2023.

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