Budget March 2023
Today’s post takes a look at the usual speculation in advance of the March 2023 Budget and at what actually happened.
Contents
Budget March 2023
We’ve had far more Tory budgets (and Tory PMs and Chancellors) over the past nine years than I expected when I started writing this blog.
- As I usually point out in my introduction to each one, this hasn’t led to much in the way of Tory policies.
I think this is the eighth budget of this parliament, which now has less than a couple of years to run.
- It’s been a torrid time for a Tory party which won a large majority in 2019 – they’ve had to deal with Covid, soaring energy prices, wider inflation, higher interest rates and the impact of Brexit.
And they have voluntarily taken on an unachievable commitment to the UK becoming carbon Net Zero.
- All of this has cost a lot of money, and all of this administration’s political capital.
But perhaps this budget will be different.
- Just a few months after the Kwarteng “growth” budget was so badly received, growth is back on the agenda.
This is expected to to primarily take the form of support for enlarging the workforce.
- Which will include more free child care, better write-off allowances for corporate investment, and best of all, an increase in the pensions lifetime cap.
I’ve been banging on about the inequity of the LTA since I started the blog.
- It’s a tax on successful investment, since there is already an annual cap on pension contributions.
And it’s too low – Gordon Brown sucked us all in to making pension contributions with an LTA of £1.8M way back in 2010.
- Thirteen years of coalition and Tory governments later, we’re down to £1.07M, with no tax-efficient way to get the money back out.
Even the mooted restoration of the £1.8M limit would mean that inflation has been ignored – an LTA indexed since its introduction in 2006 would now stand at £2.7 – but it would be a big stop in the right direction.
Speculation
Remember that a lot of speculation relevant to an investment blog is produced by investment firms and accountants in order to provoke action (overreaction?) from clients and investors in advance of draconian measures that rarely appear.
Notes in blue indicate what actually happened, which for most Budgets is a lot less than was predicted.
Income tax and NIC
Nothing was expected here.
- Nothing did happen.
Cost of living
The energy price cap was due to increase to £3K (for the “average” household) from April, but on the morning of the budget it was announced that existing £2.5K cap would be extended for another three months.
- This was a pre-announcement.
Growth
As well as the pensions changes and investment allowances (see below) the big growth/”back to work” policy was expected to be an extension of free childcare from 3-4 year-olds out to 1-2 year-olds.
A few investment zones with low taxes and low regulation (something like the Enterprise Zones of several decades ago) were also expected to be confirmed, though many fewer than Kwasi proposed in 2022.
Changes to Universal Credit childcare support were also expected, with parents paid up-front rather than in arrears when moving into work or increasing their hours.
- A dozen investment zones were announced.
Capital gains and Inheritance tax, wealth taxes
Nothing was expected here.
- There were no changes.
Corporate tax
The corporation tax rise from 19% to 25% was announced in the Autumn mini-budget and was expected to remain.
The reduction in the investment allowance limit from £1M to £200K pa was expected to be cancelled, and 100% investment allowances might be introduced.
- The corp tax rise remains, and the 100% investment allowances appeared (for the next three years, at least).
Investments and pensions
There was widespread speculation that the LTA would be restored to the 2010 level of £1.8M.
- There was less confident speculation that the annual allowance would be increased from £40K to £60K, and that the MPAA (the annual allowance for those who have taken money from their pensions) would increase from £4K to £10K.
The changes to the LTA and the annual limits are primarily aimed at people like doctors who can hit existing limits many years before state pension age.
It was also possible that the state pension age itself might be increased at an earlier date than planned, though there is a separate process for this.
Hunt (I feel I should call him Jeremy now) went one better than increasing the LTA to £1.8M and abolished it entirely.
- The annual limit went up to £60K and the MPAA was restored to £10K.
- The tax-free cash limit has been frozen at 25% of the old LTA (ie. £268K), so those with a protected higher LTA will need to think twice before contributing to their pensions once more.
Nothing major was expected on ISAs, VCTs or EIS, though there was some speculation that SEIS limits might be increased.
- I didn’t spot anything.
Some had called for the penalties on withdrawals from LISAs before the age of 60 to be reduced to 20% (which would just recover the government bonus on the initial contribution) or scrapped entirely.
- This did not happen.
Property
Nothing was expected.
- And nothing happened.
Green stuff
There were reports that new commercial property developments would be required to have charging installations for electric cars.
- I didn’t spot this.
Sin taxes
A fuel duty cut due to expire at the end of the month might be extended.
- It was, and duty on beer in pubs was cut.
Surprises
There were no real surprises, but the abolition of the LTA (rather than just an increase in its value) must count as a bonus that was successfully kept under wraps.
Conclusions
At long last, I have a budget to celebrate.
- Ding-dong, the wicked LTA is dead.
The rest of the speech was okay, too, but nothing compares to the demise of the lifetime allowance.
- Until next time.
Mike Rawson
Mike is the owner of 7 Circles, and a private investor living in London.
He has been managing his own money for 40 years, with some success.
LTA abolition as of 6th April 2023 is good news; however, frozen PCLS is an interesting twist.
Re ISA’s: 20k subscription limit confirmed for 23/24, but see entry 59 in Section ‘Policy Decisions’ at: https://www.gov.uk/government/publications/spring-budget-2023/spring-budget-2023-html
Is this a hint of cuts to come [to the subscription limit] or perhaps the impact of fiscal drag?
I wouldn’t mind an explanation of entry 59, but it can’t be unannounced cuts.
The cash sum freeze makes some sense for those without LTA protection, but it means I gave to draft another spreadsheet at some point, to figure out if it’s worth restarting contributions.
I won’t let that spoil this historic day, though – I’ve been waiting a long time for this.
Enjoy the day!
At a max of 10k PA contributions it should be a pretty simple spreadsheet?
Entry 59 is indeed an oddity – time will tell, no doubt.
The work is in collating all the historic withdrawals and modelling future growth/inflation. I need to figure out the trade-off between future tax-free cash savings and income tax savings. The first £10K has a large impact.
Got it.
But beyond that, as I currently understand things, it is just tax deferral and possible IHT avoidance.
It’s not deferral as things stand, and with no descendants, I don’t care about IHT any more.
But given Labour’s determination to reinstate this bonkers limit, I think my time will be better spent on planning emigration than on the spreadsheet.
Or re-training as a doctor, as under Labour “all animals are equal but some are more equal than others”
Total madness, but nothing new there, ….
Emigration does however have a bit of “the grass is greener” tinge to it too.
Fills the day nicely though!
Re entry 59:
See page 37 of: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1142824/Costing_Document_-_Spring_Budget_2023.pdf
which states limit [currently £20k] to increase by cpi from 24/25.
It is not clear to me why that would save HMG money – but it maybe because they are assuming lower returns/interest rates.
great day re: LTA. But surely we need some kind of future proofing from retrospective sea saw politics otherwise ( to your point re: Brown and the 1.8) people can/will make plans and contributions based on new rules only to find LTA or a new name same/similar thing is reintroduced “trapping” the money. I also wouldn’t be surprised to see some future attack on IHT status or cap on amount of pension IHT free but let’s hope not.