Share Prices & Company Research


17 March 2023

Spring Budget Statement 2023 Analysis

Tess Williams, Head of Financial Planning, and Alastair Power, Investment Research Manager

With the Chancellor of the Exchequer emerging from the doors of 11 Downing Street with the famous red Budget Box this week, we explore the key highlights of his Spring Statement and assess what it might mean for you.

As expected, Jeremy Hunt’s second budget focused on supporting the Government’s plan to halve inflation, grow the economy and reduce public debt. Against a backdrop of Silicon Valley Bank’s liquidation, the rising cost of living, cross-sector strikes and higher than expected January tax receipts, the Chancellor spoke again of his desire to encourage people into employment and to reduce early retirement. A larger workforce equates to more tax receipts and better economic growth. So, how does his Spring Statement address this?

On one front the Chancellor has put together a series of different measures designed to assist those with a desire to work to do so. While many are of note; help for people with disabilities; help for families with childcare costs; and a focus of mental health and occupational health support in the workplace; the surprise was the announcement regarding pensions aimed at early retirees.

What did the Chancellor say about pensions?

It was widely reported in the run up to the Spring Statement that Jeremy Hunt would raise the Lifetime Allowance, but its abolition is a considerable step further. At present, workers who save more than their Lifetime Allowance are hit with a 25% levy on any excess when the pension benefits are drawn or at age 75. This levy increases to 55% tax if they withdraw the excess as a lump sum.

By removing this threshold with effect from 6th April 2023 and further abolition of the tax altogether in the 2024 Finance Bill; the Chancellor hopes to encourage workers, especially those in the NHS, to refrain from retiring early, remain in their posts, save more into their pensions and support the economy.

The removal of the Lifetime Allowance is a significant shift from the previous cap of £1.07m. In conjunction with this, other allowances, which have remained frozen for some time, have been increased too: 
  • Annual Allowance increases from £40,000 to £60,000 with effect from 6th April 2023
  • Money Purchase Annual Allowance increases from £4,000 to £10,000
  • The threshold at which the Annual Allowance reduces has been increased to £260,000 with a limit of £10,000 minimum.
All good news for higher earners.

The level of “Tax Free Cash” available remains frozen at £268,275 unless you have protected your Lifetime Allowance at a higher level which supersedes this.

These changes present an opportunity for those with salary of £60,000 or higher to put more into their pension if they can afford to do so. For business owners with surplus cash in their business, the changes offer a chance to review their employer contributions with their accountant or financial adviser to extract cash in a tax efficient manner.

For those earning between £125,140 and £150,000 who will be affected by the upcoming reduction in the Additional Rate Tax threshold, paying more into a pension may also be worth considering.

Were there any changes to savings allowances?

By contrast, ISA and JISA allowances, as well as the starting rate for savings, will remain frozen at their current levels but with an 18-month extension on the Help to Save scheme which supports low-income savers. 

Although it was announced in the Autumn 2022 Statement, next month will see the introduction of new dividend allowance and capital gains tax (CGT) limits. From the 2023/24 tax year, the current tax-free allowances of £12,300 for individuals and £6,150 for trusts will be more than halved, falling to £6,000 and £3,000, respectively.

The original thresholds were previously expected to be frozen until at least 2026, while the new allowances will be halved again next April.

As individuals and trusts are liable to pay CGT on gains arising from the sale of assets, it may directly affect your investments. Read our Capital Gains Tax Fact Sheet for more information on the allowances for the 2022/23 tax year.

The Government expects that these measures will raise more than £1.2bn per year from April 2025.

Market Reaction

Financial markets provided a muted response to the Chancellor’s Spring Statement. Looking at the two best indicators of market reaction, currencies and government bonds, neither moved significantly as Sterling slightly weakened against the Dollar and UK gilt prices increased marginally.

The Chancellor’s statement that the UK will not enter technical recession this year, as per forecasts from the Office for Budget Responsibility, was largely discounted. Current events within the banking sector are a considerable distraction, with ripples spreading through financial markets in the aftermath of the Silicon Valley Bank collapse.

A potential reinforcement of this comes in the negative share price reaction of companies such as Babcock and BAE Systems to the £11bn increase in defence budget over the next five years. The attention of financial markets is clearly focused in other areas at present. 

While aimed at supporting the NHS and economic growth, these increases in support for pension funding create opportunities for all high earners, coupled with the pension freedoms introduced in 2015. If you’ve not reviewed your retirement plans recently then this is a good time to consider your options. 

The information contained in this article does not constitute a personal recommendation and the investment or investment services referred to may not be suitable for all investors. Any opinion or estimate expressed in this article is Redmayne Bentley’s current opinion as of the date of this article and is subject to change without notice.

The value of investments and any income from them is not guaranteed and may go down as well as up; you may get back less than the amount invested. Past performance is not an indication of future performance.

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Spring Budget Statement 2023 Analysis
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