‘Budget for Growth’ plays it safe, says RSM UK
‘This has been badged as the ‘Budget for Growth’ but for most individuals, this may be seen as the budget of bland ideas. The chancellor simply could not afford to make a mistake in his announcement today. He has put out the fires set by his predecessor in the Autumn Statement, and flashy tax giveaways for individuals were not on the agenda. He has seemingly followed the advice of the opposition benches that ‘boring’ government is the safe pathway to growth.
‘There was little in the Budget that would relieve the tax burden for households. The extension of the energy price guarantee until the end of June, and free childcare measures will be widely welcomed to ease the continued cost of living pressures. Many earners will also see a small increase to their take-home pay from 6 April following the reversal of the 1.25% National Insurance increase and scrapping of the health and social levy. The current average weekly earnings for individuals is £630, and such average earners will be nearly £5 per week better off from 6 April. However, that benefit was announced in the calamitous Mini-Budget last year, and not today by Mr Hunt.
‘The small tax advantage on earnings could well be outweighed through the stealth tax measures previously announced. The Office of Budget Responsibility has forecast that inflation will decrease by the end of the year, but despite this, continued wage inflation could result in many individuals being dragged into higher rates of tax, and the tax burden will continue to be at its highest level since the second world war.
‘The one big idea for individual taxpayers was increasing the amounts that they can save into their pensions. With no lifetime limit as to how much can be saved into pension pots, the big winners may be those looking to limit their inheritance tax (IHT) exposure.
‘There are significant IHT advantages to holding assets within a pension pot, and some pensions can currently be passed onto the next generation free from any tax if the individual dies before the age of 75. The government’s figures estimate that abolishing the pension lifetime allowance limit will cost over £800m annually from the 2026/27 tax year onwards. In time however, this cost to the Exchequer could be substantially higher. We await the detail of the pension measures from the Treasury, but financial planners may be rubbing their hands with glee at the prospect of maximising pension pots to limit a family’s IHT exposure.
‘There are already some who see the existing pension tax rules as too generous, and taxpayers need to be wary that the pension announcements made today could be reversed or restricted by a new government following a general election.
‘So, the Chancellor’s speech was far from a blockbuster, but it remains to be seen whether being boring is brilliant enough to solve the country’s productivity puzzle.’
Chris Etherington, tax partner at leading audit, tax and consulting firm RSM UK