Budget 2023: Childcare, pensions, tax, benefits — the key takeaways from Jeremy Hunt's statement
This budget was meant to be boring, but chancellor Jeremy Hunt didn’t get the memo.
In the run up to the announcement, and in the speech itself, there were big changes for childcare, pensions, benefits and energy bills, so it’s worth knowing what’s on the list, and what it means for you.
One big announcement was the plan to offer 30 free hours of childcare for working parents with children aged from nine months to three years.
This will be phased in by September 2025, and could make a massive difference to parents being forced to make impossible decisions about whether or not they can afford to work.
However, a lot will depend on how the government funds this, and ensuring that it’s enough to enable childcare providers to offer it without losing money. There’s always the risk that it forces them to offer spaces at a loss, which could put more of them out of business.
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There are some early positive signs, with additional government funding, a move from 1:4 to 1:5 staffing ratios and £600 sign-on bonuses for new childcare workers, but the details of the policy will be crucial.
For parents on lower incomes, there’s more good news in the form of the change to childcare support through universal credit.
At the moment people have to fork out hundreds of pounds to pay for care in order to go back to work — and they don’t get reimbursed for weeks. In future, the support will come up-front, so parents don’t need to go into debt to return to work.
Plus, for school-age children, there will be more funding for wraparound care in primary schools, with the aim that all parents will be able to drop children off from 8am to 6pm by September 2026. However, whether this will be enough remains to be seen.
The Hargreaves Lansdown Savings & Resilience Barometer showed that parents have to spend an average of just under £25,000 a year on essentials, compared to an average of £20,000 overall. They’re also more likely to behind on bills and debt repayments — with 9% of couples with kids facing arrears, compared to 8% overall. Single parents are even more likely to struggle, and 23% of them are in arrears.
Watch: Jeremy Hunt announces big extension of free childcare in Spring budget 2023
Other benefit reform
Hunt is also planning major reforms to disability benefits, to encourage people to work more hours.
The idea will be to separate benefit entitlement from people’s ability to work, so people can always seek work without being reassessed for disability benefits.
But alongside the return-to-work carrots, Hunt wielded the stick — making claiming out-of-work benefits more difficult, including a widening of sanctions for those who don’t look for job or refuse a "reasonable job offer", stricter requirements for parents to look for work or take on more hours, and a higher earnings threshold at which you no longer need to visit a work coach.
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For those who rely on benefits to make ends meet, it’s not going to make life any easier.
And while this will certainly force more people to work, the jury is out on whether it’s really going to make a significant difference, while more than 2.5 million people are unable to work because they’re too sick.
To really move the dial, the cause of this enormous wave of sickness will need to be addressed.
The British Medical Journal (BMJ) said 7.21 million people were waiting for NHS treatment in January this year, the average waiting time for treatment has hit 14.6 weeks, and over 375,000 people have been waiting for over a year — 231 times as many as pre-pandemic.
Solving this problem isn’t going to be easy, but it may be the only way to significantly make a difference, so that the third of people on long term sickness who would like to find a job can get the care they need to enable them to return to work.
There were three big changes announced for pensions.
For those who have retired and are now considering returning to work, perhaps the most important is the Money Purchase Annual Allowance.
This sounds off-puttingly complicated, but it essentially means that once you have accessed more than the tax-free cash from a defined contribution pension, you aren’t able to pay in more than £4,000 a year to your pension.
Read more: Budget 2023: UK will not enter recession, OBR forecasts
It means if you returned to work with the aim of rebuilding your pension, this would stop you cracking on with it.
The change will mean that from April you can pay in £10,000 in any tax year — which will be enough for an awful lot of savers.
The budget also saw the abolition of the lifetime allowance — which is the maximum you can hold in your pension during your lifetime.
The impetus for the change came from the fact that so many NHS senior consultants had hit the ceiling and decided to stop work.
For the rest of us having a million-pound pension seems like a complete impossibility, but the fact this has been axed should matter to us all, because it completely removes the risk anyone can ever be caught out.
The annual allowance has also risen from £40,000 to £60,000. This is unlikely to make a massive difference to anyone but the highest earners, but for those who receive unexpected lump sums, there may be years when this comes in incredibly handy.
The rise in the energy price guarantee from £2,500 to £3,000 in April has been shelved, which is welcome, but it’s not a golden bullet.
Already half of people are finding it difficult to pay their energy bills and more than one in 20 have fallen behind. For them life is going to get even harder, because the energy bill rebates of £67 a month will stop this month.
The more positive news is that when wholesale prices fall enough to take the energy price cap below £2,500, we will revert to that instead, so our bills will fall.
Read more: Budget: Five key points on Jeremy Hunt's list that impact your finances
At the moment, this is expected to happen in July, when the cap is forecast to be £2,100. So we just need to struggle on through until the summer.
For those on pre-payment meters there will also be some respite, with the axing of the pre-payment premium.
It’s hard to believe we have lived with a system for so long where those who can least afford their energy bills have had to pay more for it than anyone else. Now they will face the same charges as those paying via direct debit.
There’s good news for drivers, because Hunt has frozen fuel duty again.
He also decided to extend the 5p duty cut, that was due to come to an end, for another year.
Petrol prices have fallen back significantly from the peak. According to the RAC they’ve 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 way ahead of the levels we saw just before the pandemic, of around £1.25, so it would have been difficult to convince drivers that now was the time to add another 5p on top of this.
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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.
There’s the hope that the delay will protect the nation’s drinkers while inflation is so high, and only kick in when it has started to fall back.
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.
Sarah Coles is a personal finance analyst at Hargreaves Lansdown and co-presents Switch Your Money On podcast.
Watch: Key points from Jeremy Hunt's Spring Budget 2023
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