Spring Statement: A tense balancing act

Please note: The article does not constitute advice or any form of recommendation. Barclays Private Bank does not offer tax advice, and professional advice should always be sought.

The calm after the storm? Yes and no. While the Spring Statement was predictably short on big surprises, it did go some way to confirming that the UK is on a steadier economic footing than 6 months ago. 

While talk of a recession was batted away in the Commons, with inflation expected to fall closer to the 2% target by the end of 2023, a high degree of global uncertainty and volatility still casts a shadow. The collapse of Silicon Valley Bank (SVB), only days before the Statement, being a case in point.  

Despite Mr Hunt’s more optimistic tone, caution remains the name of the game. Timing is also important, with more voter-friendly fiscal decisions potentially kept on ice until nearer election time.

Here, we reflect on some of the key announcements and marry them against the core themes from our article last year, UK budget: In the bleak midwinter.  

Income tax, National Insurance and energy bills

The triple threat of stubborn inflation, geopolitical tension and a cost-of-living squeeze, continues to dissuade the government from loosening the purse strings too readily.  

A recent decline in wholesale gas prices, in parallel with the incoming warmer Spring months, wasn’t enough for the energy support scheme to be wound down. Instead, the government opted to scrap the rise in the average energy price cap, keeping it at £2,500. Household energy subsidies will also now run to July in recognition of price pressures weighing large on family budgets.

The Chancellor also rejected calls from some in his party to ease the income tax burden, opting instead to keep rates as they are. His fear, for now at least, being that lower taxes and higher disposable incomes, add further fuel to the inflation fire.  

It means the threshold at which the basic tax rate kicks in remains at £12,571. The higher tax rate threshold stays at £50,271 (until 2027/28), and the threshold at which the top rate of tax is paid is kept at £150,000, (falling to £125,139 from 6 April), with the personal allowance being completely removed for those earning over £125,140. 

Meanwhile, National Insurance was left untouched. The company rate stays at 13.8% for employees on £9,100 or more, annually.  

Inheritance, pensions, dividends and capital gains

Pensions were the early headline-grabber in the run-up to the Budget, and the rumours turned out to be true. In an effort to incentivise more middle-aged professionals to remain in the workforce, the government has removed the pension allowance - a quite staggering, and very much welcome change in legislation for many.  

The previous threshold of £1.07 million was seen as punitive for those workers who had already maxed out their pension contributions, or were close to doing so. It also saw pension savers who passed away, or who accessed their funds before age 75, incurring a minimum 25% tax charge, and as high as 55% on the excess amount above the lifetime allowance. 

A desire to reinvigorate the UK workforce was also behind the eye-catching decision to subsidise nursery places to the tune of 30 free hours a week for all one to two-year olds. With nursery fees often proving a return-to-work blocker for new parents – especially mothers – the government committed to removing a barrier that’s as emotive as it is financial. 

Any ale-drinking parents who wanted to raise a glass to that decision will have been further pleased to hear that the duty on a pint in the pub will be frozen from the 1 August. 

No changes were made to dividends and capital gains. From April 2023, the tax-free dividend allowance for stock market investors will halve to £1,000. Likewise, the capital gains tax allowance falls to £6,000 from April this year, before halving again to £3,000 from April 2024.  

Corporation tax

Despite protestations from some in the Conservative Party that it risked damaging the UK’s investor appeal, the Chancellor stuck to his guns and increased corporation tax from 19% to 25%. Amid the other pledges being made, something had to give. It means that from April 2023, companies earning in excess of £250,000 will be captured by that new 25% threshold. 

Mr Hunt also ended the so-called “super-deduction”, whereby companies could take advantage of 130% tax relief on equipment bought. In its place, comes “full expensing” for three years from 1 April 2023, allowing companies to write off 100% of (qualifying) UK capital expenditure in the same year as the spend is made.  

In an attempt to encourage more inward investment and encourage business activity, the government pledged to create 12 investment zones, predominately across the Midlands and the North. Scotland, Wales and Northern Ireland will also have at least one of the zones each.  

Stamp Duty Land Tax (SDLT)

For property buyers, there were no significant changes announced. The SDLT threshold stays at £250,000 until March 2025, but only applies to buyers not subject to overseas or second home surcharges.  

A final word

The government and opposition will invariably disagree on the Budget’s effectiveness. Regardless of your political affiliation, these events serve as an important reminder for wealth holders that change is constant. The recent demise of SVB reinforced that point for investors this week.  

In both good and bad times, the logic of diversifying tax risk remains crystal clear.

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