Top Three Announcements of the Spring Budget
In the wake of the Spring Budget announced last Wednesday, it’s important to understand how the changes being implemented will affect households. Some of the actions are coming in next month, while others will be brought in from next year. Even if you’re not someone who will benefit from the increased pension allowance, it’s useful to understand how this will affect the economy. Here’s the most important three announcements from Jeremy Hunt, which will all work together to avoid a technical recession.
Childcare
The biggest announcement was for extra support for childcare, which will come into effect from April next year. Eligible households will be able to get 30 hours of funded childcare for their children from 9 months to 4 years old. To be eligible, both adults in a household must work at least 16 hours a week.
The main reason for this was to get more women into the workplace and drive up productivity and therefore economic growth. The measures announced are expected to cut childcare costs by almost 60%, making it more affordable for families and giving them extra money in their pockets.
Parents will be able to claim this for 38 weeks of the year, but it will be phased in gradually from 2024 until 2025. In April 2024, parents with children aged 2 and over will get 15 hours of free childcare a week. In September 2024, it will be extended to all children over 9 months old. Childcare will also start when maternity leave comes to an end. Finally, in September 2025, the free childcare will double to 30 hours a week.
Pension Changes
Jeremy Hunt set about removing the lifetime allowance for pensions. This is the limit to how much you are able to save into your pension without being heavily taxed. From April 2023, this will be removed and the pensions annual allowance will go up from £40,000 to £60,000. In a single tax year, you will then be able to save up to £60,000 and still get tax relief for doing so.
The main reason for implementing this change was to get more NHS doctors back into work. People who have recently retired because of pension tax rules will be able to receive more of a pension if they get back into work. Instead of a reform simply for the NHS to help tackle the backlog, it was a blanket approach that covers high earners.
Critics of this pension reform have called it a tax cut for the rich and have asked for a similar scheme to be implemented instead like they did for judges. The Judicial Pension Scheme came into effect in 2022 and applied specifically to judges, making sure only they would benefit from these pension changes. Even though a similar scheme is needed for the NHS, it would take years to come into effect, which is why the much quicker blanket approach will be implemented instead. Any changes can be made in future to change it as needed.
Energy Price Guarantee
The expected increase in the energy price cap was pushed back, as predicted by some before the Budget. The current levels of support up to £2,500 will continue until the end of June, which is reported to save an average household £160. Ofgem is expected to lower the price cap in July, which will lead to slightly lower energy bills.
The Energy Bill Support Scheme will still come to an end in March. Without the additional £67 a month from the government, households will start to notice the brunt of the high energy costs that have been in place since before October 2022. Those on prepayment meters, however, will have the premium charged removed from their accounts so costs will be more in line with households on a direct debit.