The Budget
The Budget
What does it mean for you?
Whether it’s the Budget, a Spring Statement or Spending Review, it pays to stay on top of what the Chancellor unveils in the House of Commons. But working out what the state of public finances means for your personal finances can be tricky - and you’re not alone if you don’t understand the jargon.
We explain what the latest changes could mean for you and help you get a better view of the bigger picture with simple guides and explainers.
Money matters
The Budget’s the big one but other major Government updates impact your household budget too.
Chancellor chat
It’s almost impossible for Chancellors to avoid financial terms when they speak. Here’s a guide to some of the most commonly used terms.
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Your income and tax
Your income and tax
- A cap on the lifetime allowance for pension savings is to be removed. Previously, the most you could save in private pensions without receiving a tax charge was £1.07m – now there will be no limit to how much you save. The Lifetime Allowance charge will be removed from 6 April 2023 before the allowance itself is abolished entirely from April 2024.
- Separately, the annual total amount you can add to your private pensions each year without a tax charge is to rise – from £40,000 to £60,000. This takes place from 6 April 2023.
- And what’s called the ‘money purchase annual allowance’ is also changing. This affects those who are already drawing down money from a defined contribution pension but who want to keep on saving more for the future. The allowance was £4,000 a year into a pension before a tax charge. From 6 April 2023, this will rise to £10,000.
The changes below were all announced by the Chancellor in the Autumn Statement 2022:
- From 1 April 2023, the National Living Wage (NLW) is to rise by 9.7% to £10.42 an hour (for those aged 23 and over). It represents an increase of more than £1,600 to annual earnings if you’re a full-time worker on the NLW, figures in the Autumn Statement said.
- An extended freeze on income tax thresholds at which you become a basic-rate (20%) or higher-rate (40%) earner was unveiled. It will now last two years longer than planned, to 2028. Because these thresholds won’t move in line with inflation, pay rises that take you into a higher tax bracket will apply sooner. Known as fiscal drag, it will see millions of workers pay more tax. This applies to those in England, Northern Ireland and Wales. In Scotland, separate income tax rates and thresholds apply.
- For the highest earners, the income threshold at which the top rate of tax (45%) applies will fall in April 2023 – from £150,000 to £125,140. If you already earn more than £150,000, you face paying an extra £1,243 a year. Tax rates and thresholds in Scotland are subject to the 2023-24 Scottish Budget published on 15 December 2022.
- Inheritance tax (IHT) and National Insurance (NI) rates were kept the same. IHT gives you a tax-free allowance of £325,000 (above which you pay 40%). It has been at this rate for over a decade and is now set to stay until April 2028. New NI rates – which began on 6 November 2022 after a policy reversal – were also frozen until 2028.
National Living Wage to rise by 9.7% to £10.42/hr
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Your home
Your home
The changes below were all announced by the Chancellor in the Autumn Statement 2022:
- Saving to buy a home? You face a new deadline to avoid higher stamp duty bills. In September 2022, the Government originally doubled the threshold at which homebuyers start paying stamp duty from £125,000 to £250,000. For first-time buyers, it had been lifted from £300,000 to £425,000. These limits will only remain until 31 March 2025, so make sure you factor this into how you plan to save for your deposit.
- If you’re a homeowner on universal credit and struggling to meet mortgage payments – e.g. having lost a job - it could now be easier to ask for Government help repaying your mortgage interest. To qualify for the Support for Mortgage Interest (SMI) scheme you would usually have to be claiming universal credit for at least nine months before applying. From spring 2023, this wait will be reduced to three months instead. SMI is a loan, so must eventually be repaid (usually when you sell your home in the future).
- If you’re a tenant in social housing, the cap for rent increases between April 2023/24 has been lowered from 11.1% to 7%.
Higher stamp duty from March 2025
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Your benefits
Your benefits
- If you receive universal credit and have childcare costs, the maximum you can claim from the Government towards these will rise in summer 2023. If you have one child, the maximum amount paid monthly rises from £646 to £951. For two children, it’ll go up from £1,108 to £1,630. Each amount will then increase in line with CPI each year until 2027/28. In another change, the money will be paid upfront to eligible parents rather than needing to be claimed back.
The changes below were all announced by the Chancellor in the Autumn Statement 2022:
- If you receive the state pension, it’ll rise 10.1% from April 2023 in line with inflation under the ‘triple lock’. So if you qualify for the full ‘new’ state pension, your weekly income will increase from £185.15 to £203.85. And if you’re on the full ‘basic’ state pension (for those who reached pension age before April 2016), you’ll see your income rise from £141.85 to £156.20 a week. The standard minimum income in Pension credit will go up by 10.1% too.
- If you’re eligible for other state benefits, most of these will also increase by 10.1% in April 2023. These include the working tax credit, personal independence payment, child benefit and universal credit.
- The overall benefit cap – the total allowed - will also rise by 10.1% from next April. It will be lifted from £20,000 to £22,020 for families nationwide, and from £23,000 to £25,323 for families in Greater London. You can find more on the Government’s Moneyhelper website.
‘Triple-locked’ state pension to rise by 10.1%
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Your spending and bills
Your spending and bills
- The Energy Price Guarantee, which means energy bills of £2,500 a year for a typical household, has been extended by three months. It will be kept in place until the end of June 2023, instead of ending in March.
- If you use a prepayment meter for your energy bills, you’re set to save £45 a year after the Chancellor said the premium for paying by meter would end. Meter payment charges will now be comparable to those who pay by direct debit. The change takes place on 1 July 2023.
- Working parents of two-year-olds will be able to apply for 15 hours of free childcare a week from April 2024. Later in the same year, in September, those with children aged nine months to two years will also be eligible. Then, from September 2025, the number of hours of free care is set to double to 30 hours for all eligible parents with children aged under five. The benefit is available for 38 weeks of the year. Parents of three and four-year olds can currently apply for up to 30 hours of free care.
The changes below were all announced by the Chancellor in the Autumn Statement 2022:
- To help the most vulnerable with their energy bills, the Chancellor announced more targeted Cost of Living payments. Between April 2023 and April 2024, those on disability benefits will receive an extra £150; pensioner households an extra £300; and households on means-tested benefits an extra £900.
- Council tax bills in England could rise by up to 4.99% from April 2023 – higher than previously allowed. The current cap is 2.99%, and any attempt to raise bills by more than this would have triggered a referendum by your local authority. A new higher 4.99% limit could make it easier for councils to increase bills.
- If you own an electric car, van or motorbike, you’re set to pay Vehicle Excise Duty from 1 April 2025. New electric cars registered from then will pay a ‘first year’ rate £10 for an initial 12 months, then the standard rate (currently £165) after that. Zero emission cars registered between 1 April 2017 and 31 March 2025 will also pay the standard rate.
Energy price guarantee stays at £2,500
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Your investments
Your investments
The changes below were all announced by the Chancellor in the Autumn Statement 2022:
- A cut in allowances for capital gains and dividends could leave you facing a higher tax bill on your investments or income.
- The amount you can earn from dividends –payments from shares held in companies - without paying tax will fall from £2,000 to £1,000 in April 2023, and then halve to £500 a year later. This could affect investors who receive dividend income from shares and funds, and small business owners who pay themselves in dividends.
- Separately, the annual capital gains tax (CGT) exemption is also set to fall, from £12,300 to £6,000 in April 2023 - and then halving to £3,000 in April 2024. CGT is paid on any ‘gain’ in price when you sell assets chargeable to CGT such as a second home or investments held outside an ISA.
Investors’ allowances cut
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Spring (or Autumn) Statement
Although historically seen as having less impact on household finances than a Budget, it’s still considered to be a major seasonal update on the Government’s finances.
Think of it as a check-in, months after a Budget, to let the country know how it’s all going.
Spending Review
These tend to take place every two to four years and set out what the Government expects to spend on public services (and where) over the next few years.
Other announcements
Governments typically aim to deliver one Budget and seasonal statement a year. But major events – both political and economic – can put pressure on Chancellors to deliver extra financial updates. Previous examples include the mini-Budget in September 2022.
What does the financial language mean?
As custodian of the nation’s purse strings, it’s almost impossible for any Chancellor to avoid using lots of financial terms when they speak.
You’ll often hear the same words and phrases over and over again, and if you’re unsure of their meaning, it’s easy to lose track.
Here’s a guide to some of the most commonly used terms.
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Governments borrow money to pay for their plans and fund its many obligations to the country, for example for public services or huge infrastructure projects. How does it do it? By selling bonds, known as ‘gilts’, to financial bodies such as pension funds or insurance companies. These bonds will be paid back by the Government in the future but – in the meantime - pay out interest to the holders.
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Often confused with the national debt (see below), the deficit is when the Government spends more than it receives in tax and other revenues – and then has to borrow to cover the difference.
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It’s a type of tax paid on specific goods, services or transactions. Examples include stamp duty on a home, fuel duty on petrol or diesel, and alcohol duty on beer or wine.
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Policy is the giveaway word here: it’s simply the Government’s strategy for using taxes and spending to try and influence how the economy performs. The typical aims of a fiscal policy include keeping prices and wages stable, encouraging ways to boost employment, keeping inflation low and long-term economic growth.
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In essence, this general term simply means any sort of major financial update. However, it’s also been used by Governments to describe particular events – the Mini-Budget was initially called a fiscal statement until it was rebranded.
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In a nutshell, this is an estimate of the size and health of a country’s economy over a period of time - over three months (a quarter), say, or a whole year.
There are three ways to measure it, according to the Bank of England.
It’s worked out by either adding up the total value of: goods and services (‘output’) produced in the country; everyone’s income; or what everyone in the country has spent.
To measure GDP each quarter, the Office for National Statistics collects data from thousands of UK companies.
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At its simplest, it’s the rate at which prices rise for goods and services over time.
The rate is calculated by the Office for National Statistics, which checks the prices of over 700 popular purchases (such as a loaf of bread or a new car).
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Levies are another form of tax paid to the Government. For example, the Apprenticeship Levy must be paid by all UK employers with an annual wage bill of over £3 million.
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When Chancellors talk about ‘the markets’, they tend to mean the financial markets where buyers and sellers trade securities such as bonds, stocks and other investments. What happens in the markets can affect the UK’s economy, and vice-versa.
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This is the total amount of money the Government has borrowed on behalf of the nation, mostly through the sale of gilts on financial markets. As of September 2022, it stood at roughly £2.4 trillion, or 98% of GDP.
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Paid by employees, employers and the self-employed, it helps to pay for some state benefits including the state pension and maternity allowance.
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A public body set up to give independent economic forecasts and analysis of the country’s public finances, it scrutinises the Government’s fiscal plans.
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This is what the Government departments spend money on - providing services to the public such as health care or education.
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Also known as His Majesty’s Treasury, this Government department is headed by the Chancellor. It controls public spending, sets the UK’s economic policy and aims to promote economic growth.
Barclays does not provide financial, legal or tax advice. Accordingly, nothing contained within this article should be construed as constituting legal, financial or tax advice. Tax rules and legislation can change and the benefits and drawbacks of a particular tax treatment will vary with individual circumstances. We recommend that you take professional advice where required. You have sole responsibility for the management of your respective tax, financial and legal affairs, including making any applicable filings and payments and complying with any applicable laws and regulations.
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