Spring Statement: A tense balancing act
Co-authored by Alexandra Hewazy, Nick Bearne and George Hill from the Wealth Advisory team at Barclays Private Bank
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.
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.
This communication is general in nature and provided for information/educational purposes only. It does not take into account any specific investment objectives, the financial situation or particular needs of any particular person. It not intended for distribution, publication, or use in any jurisdiction where such distribution, publication, or use would be unlawful, nor is it aimed at any person or entity to whom it would be unlawful for them to access.
This communication has been prepared by Barclays Private Bank (Barclays) and references to Barclays includes any entity within the Barclays group of companies.
- is not research nor a product of the Barclays Research department. Any views expressed in these materials may differ from those of the Barclays Research department. All opinions and estimates are given as of the date of the materials and are subject to change. Barclays is not obliged to inform recipients of these materials of any change to such opinions or estimates;
- is not an offer, an invitation or a recommendation to enter into any product or service and does not constitute a solicitation to buy or sell securities, investment advice or a personal recommendation;
- is confidential and no part may be reproduced, distributed or transmitted without the prior written permission of Barclays; and
- has not been reviewed or approved by any regulatory authority.
Any past or simulated past performance including back-testing, modelling or scenario analysis, or future projections contained in this communication is no indication as to future performance. No representation is made as to the accuracy of the assumptions made in this communication, or completeness of, any modelling, scenario analysis or back-testing. The value of any investment may also fluctuate as a result of market changes.
Where information in this communication has been obtained from third party sources, we believe those sources to be reliable but we do not guarantee the information’s accuracy and you should note that it may be incomplete or condensed.
Neither Barclays nor any of its directors, officers, employees, representatives or agents, accepts any liability whatsoever for any direct, indirect or consequential losses (in contract, tort or otherwise) arising from the use of this communication or its contents or reliance on the information contained herein, except to the extent this would be prohibited by law or regulation.