After being treated to what were to all intents and purposes, three Budgets last year, we’re fast approaching the first Budget of 2023 on 15 March. And it’s shaping up to be an interesting one. The most recent ‘Budget’ or Statement was on 17 November 2022. Jeremy Hunt sought to regain stability and confidence in the UK’s finances, after these had taken a major knock following his predecessor’s not so mini-Budget earlier in the Autumn. I can’t remember seeing quite so many U-turns in such a short space of time.

Key points I’ll cover in this article:

  • A reflection on the November Budget – the changes already confirmed to take effect on 6 April 2023.
  • The 4 E’s of economic growth – will 15 March see any policy interventions to support the Chancellor’s new charge for growth?
  • Spring Budget predictions and wishes – from pension reform to savings and investments, what might 15 March mean for financial services, advisers and their clients?

Implementing November 2022 Budget changes

One priority in November, which has been repeatedly emphasised since, is to get inflation down. After reaching a 40 year high of 11.1% late last year, the target is to halve this by the end of 2023. Chancellor Hunt also announced some major re-prioritisations of public spending and while this involved many cuts, these were largely deferred until 2025.

We also saw a number of tax-increasing measures. These included a two-year extension until 2028 of the freeze on income tax thresholds, a stealth tax which really bites at times of high inflation. The threshold for the additional rate was cut significantly. There was a similar extension to the frozen inheritance tax threshold. Meanwhile, capital gains tax allowances will drop from £12,300 to less than half (£6000) this April and then be halved again the following April.

So, even without the March Budget, there are a long list of changes (or freezes) already confirmed to take effect from 6 April, with resulting advice opportunities.

What can we expect from the 4 E’s of economic growth?

Many would have perceived the November Budget’s U-turns as a clear break from the 'go for growth’ mantra of the Truss premiership. But perhaps to fill the apparent growth void, on 27 January this year, the Chancellor set out his framework for Economic Growth, explaining that specific measures would follow in ‘budgets and autumn statements in the years ahead'. His speech centred around what he called the four E’s of economic growth – Enterprise, Education, Employment and Everywhere (the levelling up agenda).

Within his speech, the Chancellor made specific references to reforming Solvency II and a relaxation of the auto-enrolment charge cap, by allowing performance fees linked to illiquid investments to be outside the cap. These are part of an ongoing major drive to remove barriers and encourage greater investment in illiquids and productive finance.

The scene has been set for future budgets to announce policy interventions consistent with advancing these four ‘E’ pillars – might these start on 15 March?

Employment and economic inactivity

From a pensions perspective, things really get interesting under the Employment heading. Here, working with Mel Stride, Secretary of State for Work and Pensions, Mr Hunt wants to reduce economic inactivity which has grown sharply since the start of the pandemic. This, coupled with Brexit’s implications for immigration from the EU, is creating shortages in the UK labour market. Not only is that bad for economic growth, it can also fuel wage and then price inflation.

One particular group under scrutiny are the over 50s where there has been a sharp increase in economic inactivity, largely from individuals retiring early. Mr Hunt’s message to them was ‘your country needs you’ with references to getting off the golf course and back into employment.

Pensions tax rules and today’s world of work

Within hours of the Chancellor’s speech, according to media reports, Treasury sources were suggesting this might involve a review of certain pension tax rules that could act as barriers to working longer or for over 55s returning to work. The obvious contenders here are the pensions lifetime and annual allowances which have been cited as reasons for higher earning doctors leaving the NHS. Ongoing accrual in a defined benefit pension scheme, admittedly now rare outside the public sector, can lead to these limits being breached, resulting in often significant tax penalties.

I’d strongly support a rise in the Lifetime Allowance, perhaps to £1.5 million, accompanied by a reinstatement of inflationary increases thereafter. I’d also welcome more flexibility around the annual allowance, perhaps allowing lengthier carry forward provisions, to avoid this acting as a tax penalty on workplace pensions. Importantly, while it’s NHS doctors who have made the headlines, this should be a general relaxation – it wouldn’t be at all fair to limit changes to any particular professions.

Money Purchase Annual Allowance

The lifetime and annual allowances are aspects of the pension tax system which are creating real barriers to remaining in work. But their reach is relatively limited to wealthier individuals, and largely those lucky enough to be accruing future benefits in a defined benefit pension scheme. On the other hand, another limit – the Money Purchase Annual Allowance – could affect many, many more.

Anyone over 55 who has used the pension freedoms to access their defined contribution pension flexibly faces a severe cut in how much then can subsequently pay into a pension. Rather than the standard £40,000, it falls to £4,000 a year for personal contributions, employer contributions and tax relief combined. So anyone in this category who is considering returning to work could easily find they can’t take full advantage of the pension that comes with that future employment. Hardly a compelling reason to get off the golf course.

Spring Budget outlook

The combination of the ongoing roll-out of the recovery measures in the November Budget and the more recent Economic Growth agenda, points to an interesting 15 March Budget. In the background, the Office for Budget Responsibilities will be updating its predictions, including around inflation and tax receipts. The Chancellor will also be keeping a close eye on likely future Bank of England decisions on interest rate policy.

So, what could this mean for the financial services world of savings, pensions and investments? Alongside possible changes to corporation tax and support for energy bills, here are four topics advisers might wish to look out for:

  1. Pensions tax limits
  2. More radical reform of pensions tax relief
  3. State Pension age
  4. Productive finance and illiquid

1. The pensions tax limits

I do very much hope we’ll see movements in at least the lifetime allowance and the money purchase annual allowance. Unlike some changes, they’d be simple to implement. The Chancellor would collect a little less in income tax by granting a little more pensions tax relief, and there would be less collected in tax penalties for those who breach the limits. But the upside in terms of keeping people economically active for longer could far outweigh this. In fact, it could lead to many good outcomes – dare I say the four Gs? Good for the economy. Good for the labour market. Good for employers who can benefit from this group’s skills and expertise. And Good for the individuals who with the help of their adviser will be able to build up more money to finance their later retirement and become more financially resilient.

2. More radical reform of pensions tax relief

Year on year, Budget after Budget, there’s always speculation that the Chancellor will announce a radical reform of pensions tax relief. After all, the ‘cost’ for 2020/21 was £48.2 billion.1 Reforms, whether to save the Chancellor money or to spread reliefs more fairly, are often centred around moving away from offering tax relief at the individual’s highest marginal income tax rate and instead offering a level rate of tax relief for all, irrespective of earnings. Recently, the Institute for Fiscal Studies has suggested even more radical proposals.

But unlike changes in lifetime and various annual allowances, a radical overhaul of pensions tax relief would be highly complex to implement. There are particular challenges for defined benefit schemes and also in dealing with employer v employee contributions. This includes tackling what would become a salary sacrifice loophole and considering the interaction with National Insurance. Therefore, I’m not predicting short term changes here.

Indeed, it’s questionable if there’s time to debate and implement radical reforms ahead of the next General Election. But if income tax thresholds do remain frozen until 2028, we’ll have potentially millions more individuals paying higher rate tax – so at some future point, I do expect the marginal rate approach to be revisited. In the meantime, advisers can help clients maximise their pensions tax relief.

3. State Pension age

One spending commitment the Chancellor stuck to in the November Budget was the State Pension triple lock, which is being retained this April, meaning a 10.1% increase for State pensioners. Of course, this comes at a very high cost which is met from the National Insurance contributions of today’s workers. There’s a small National Insurance fund ‘buffer’ to cover temporary shortfalls, but Government Actuary figures recently showed this is declining.

So how will this be addressed? There was a clue in the November Budget. The triple lock confirmation was accompanied, almost in the same breath, by the Chancellor saying the outcomes of a review of State Pension age would be published early in the New Year. At time of writing, this has yet to appear, so could it accompany the March Budget? If so, I expect that on affordability grounds, the arguments will be for the State Pension age to increase to 68 sooner than currently planned. Looking further ahead, I’d be surprised if any political party commits to the triple lock in pre-Election manifestos. The State Pension is for many people a significant part of their retirement income, and many will seek advice around such changes.

4. Productive finance and illiquids

The Government has already initiated a wide range of measures to increase investment in illiquids and productive finance to stimulate UK economic growth, as well as offering investors the potential to diversify and / or achieve higher returns. I’m sure there will be further mentions of this on 15 March and perhaps some further initiatives to add to those already underway. Some could dovetail with the sustainability agenda.

Too soon for U-turns on U-turns

I’d be surprised if Mr Hunt made any significant changes to the direction he set out in his November Budget. Getting inflation under control will remain key, which is likely to mean no relaxation of Department Budgets, despite calls for public sector pay increases which are leading to increasing strike action. The November Budget included some painful U-turns from the September mini-Budget. Surely, it’s too soon to U-turn yet again?

One unknown is whether after making his November Budget as surprise free as possible to avoid any market shock reactions – could we see Jeremy Hunt pull any rabbits out of his Budget ‘hat’?

  1. Private pensions statistics commentary: September 2022. Data source, GOV.UK, updated November 2022. The £48.2 billion figure stated is calculated by adding together income tax relief on contributions and investment income and NIC relief on employer contributions less tax collected on pensions once in payment.


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