A ‘back to work’ budget was the theme presented by the Chancellor with measures aimed to encourage the 8 million or so economically inactive into work.
Things aren’t as bleak as forecast last November mainly due to falling energy prices and higher tax revenues. This will reduce Government borrowing this year and next by £30bn less than expected. But anyone hoping that we would see major tax cuts will be sorely disappointed. Whilst the economic backdrop is better than expected, the Government faces challenges of persistent low economic growth and public sector pay demands which makes broad relaxation of the tax burden unlikely for the foreseeable future.
There was a seismic change for pension taxation with the announcement of the abolition of the lifetime allowance. Many will be happy to see the back of it due to its rather blunt application to defined contribution pension pots and the not inconsiderable complexity it brought with it. It will mean many will start to think about contributing to pensions again who may have stopped for fear of incurring a 55% tax charge in the future. Together with the 50% increase in the Annual Allowance to £60,000 we expect significant interest in pension funding from clients especially at a time of growing fiscal drag.
No further changes were announced in relation to the personal allowance and tax bands.
These were previously confirmed to be frozen until 2028 in the Autumn Statement in November 2022. With the exception of the Additional Rate threshold falling to £125,140.
Also, announced in the Autumn Statement, the dividend allowance is due to decrease from April 2023 to £1,000 and then again to £500 in 2025.
The Chancellor did confirm in the Budget 2023 that the starting rate for savings would remain at the current level of £5,000 for the tax year 2023/24.