At lunchtime on Wednesday, Jeremy Hunt will stand up in the Commons and deliver his first Spring Budget. The announcements he makes will affect our household finances in many ways: from how much we pay at the petrol pumps to when we can afford to retire.
Financial commentators are predicting that this will be one of the more muted Budgets we’ve seen for some time. After all, the Chancellor may feel he has little room for giveaways and he has enough on his plate already without launching major new overhauls of taxation and spending.
But Budget statements often defy expectations. No one foresaw former Chancellor Kwasi Kwarteng’s so-called mini-Budget last year, which rocked debt markets and pension funds. The shockwaves are still being felt by millions of homeowners facing higher mortgage costs.
So it pays to keep an eye on what Jeremy Hunt sets out this week. In the meantime, here is Wealth & Personal Finance’s forecast of what could be in the Chancellor’s red box – and how you can Budget-proof your finances for whatever it throws at you.
Pension boost to lure over-50s back to work
Getting over-50s who have retired early back into the workforce is a key priority for the Chancellor.
Box of tricks: How Chancellor Jeremy Hunt will look as he sets off to deliver the Budget
There are an estimated 3.6 million people aged between 50 and 64 who are not in work. Hunt believes that encouraging them to return will help boost economic growth. A number of pension providers have also warned that early retirees could run out of pension cash prematurely.
One easy fix the Chancellor could announce is a tweak to pension rules to make it easier for people who return to the workforce to boost their nest eggs.
At the moment, once someone has dipped into their pension, the amount that they can subsequently pay in and benefit from tax relief plummets from £40,000 to £4,000 a year. This acts as a huge disincentive to making meaningful pension contributions and could deter people from returning to work.
Leading financial companies and trade associations have been urging the Chancellor to increase this allowance to £10,000. Canada Life estimates that this move would cost the Treasury just £75million a year but would earn it additional tax revenues of £400 million.
Hunt could also tackle two more so-called pension traps, which have been blamed for driving doctors and other professionals out of the workplace.
The lifetime allowance on tax-free pension saving could be increased from its current level of £1,073,100, where it is currently due to stand until 2026. Pension savings above this sum are taxed punitively, which makes it financially unviable for some people reaching this level to stay in work.
The annual allowance that restricts the amount that you can save tax-free in any one year could also rise. It is currently at £40,000 and has been since 2014.
More help towards cost of energy
It is very likely the Chancellor will ensure that average energy bills do not increase in April by extending the Energy Price Guarantee by another few months. Energy bills are scheduled to rise to £3,000 a year on average. However, the Chancellor is expected to retain the existing level of support, which would keep bills at £2,500 on average.
In his Autumn Statement in November, the Chancellor said he was looking into social tariffs, which would offer cheaper energy bills for the lowest-income households. While he is unlikely to introduce these until 2024, he may offer an update on how they could look.
Laura Suter, head of personal finance at investment platform AJ Bell, says: ‘Some campaigners argue that the universal energy support should be ditched and more money offered to those on the lowest incomes.
‘If Jeremy Hunt opted to scrap the universal Energy Price Guarantee and boost the cost-of-living support, far more help per household could be offered to the poorest in society who are struggling the most with their bills. But it doesn’t have the broad, vote-winning appeal of extending energy support for all.’
Lower prices at the petrol pumps
Fuel duty is supposed to rise every year by the retail prices index (RPI) rate of inflation. But in reality, it has been frozen by successive Chancellors for the past 12 years.
In fact, this time last year, the then Chancellor Rishi Sunak chose to cut fuel duty – by 5p per litre. Were Jeremy Hunt to go ahead with the scheduled increase, it would add an extra 12p to the cost of a litre of petrol.
However, it is unlikely that he will risk it. Laith Khalaf, head of investment analysis at AJ Bell, says: ‘Freezing fuel duty again seems pretty much inevitable to prevent motorists facing an eye-popping rise in their transport costs, which could jam the wheels of the economy.’
A delay to the retirement age
The Chancellor has promised a review of the state pension age. In his Autumn Statement, he said it would be published early in the New Year – and there is a chance he could roll it into the Spring Budget.
The current plan is to raise the state pension age to 67 between 2026 and 2028 and then again to 68 between 2044 and 2046. But this could be accelerated. The move would save the Treasury billions of pounds but would inevitably disappoint or anger those affected.
If the increase to 68 were brought forward by seven years to 2037-39, for example, anyone born from April 6, 1971, onwards would be affected.
Steven Cameron, pensions director at insurer Aegon, adds: ‘An increase in the state pension age to 68 could also prompt the Government to increase the earliest age at which pensions can be accessed to 58. It is already rising from 55 to 57 in 2028, creating massive complexities.’
The review is a reminder there is no guarantee today’s younger workers will receive what current retirees enjoy. It is worth building up a good nest egg in case the state benefit is affected in future.
More affordable childcare
The cost of childcare in the UK has been rising sharply and is among the most expensive in the world. One in four parents who pay for childcare say it costs more than 75 per cent of their take-home pay, says the charity Pregnant Then Screwed. Some are leaving the workforce or cutting hours because it is too expensive.
The Chancellor could make announcements to help parents, for example, increasing childcare support for low-income parents.
The maximum amount that parents on Universal Credit can claim back for childcare is £646 a month, and has not increased since 2006.
The average cost of a full-time nursery place for a child aged under two years old is about £1,200 a month, says the charity Coram.
…And what is not likely to be in his speech
There are unlikely to be huge giveaways in this Budget. The Government’s finances are looking slightly rosier than forecast in the Autumn Statement – to the tune of around £30billion. However, Hunt is likely to remain cautious about spending.
He froze income tax thresholds in November, and is not expected to change his tune now. So if you want a tax cut, you’ll have to create it yourself. You can reduce the amount of income tax you pay by making contributions to your pension – which are tax free.
You can also make good use of your tax-free allowances, such as tax-free savings of up to £20,000 every tax year made into an Individual Savings Account (Isa).