Budget 2023: Martin Lewis rounds up today's key announcements and what they mean for your finances
The Chancellor Jeremy Hunt has today announced a range of new tax, benefits and energy measures in his Budget. But, as MoneySavingExpert.com founder Martin Lewis points out, income tax thresholds will remain frozen – meaning millions will be pulled into paying more tax through a process known as 'fiscal drag'. Below we round up the key announcements and you can also watch Martin's instant reaction.
Watch Martin Lewis's instant Budget summary and analysis
A round-up of today's announcements
Key announcements made today include the following – the links will take you to more info:
- The Energy Price Guarantee will remain at £2,500 a year from April instead of rising to £3,000.
- Prepayment meter customers will pay less for energy from July, as charges are brought in line with those for direct debit customers.
- Heat network customers are to get more support with energy bills.
- Parents will get new help with childcare costs, including new government-funded childcare hours for under-threes and higher claim limits for those on universal credit.
- Some pension savers will get more tax relief from April, as most of the allowances will be raised.
- The 'work capability assessment' for benefits will be scrapped as part of a major package of reforms to disability benefits.
- Fuel duty has been frozen once again in a boost to motorists.
- Foster carers will get a tax cut with their tax-free allowance set to rise to £18,140 a year.
- Savings and ISA allowances have been frozen.
- Help to Save will continue until April 2025 for those on low incomes claiming certain benefits.
- Alcohol and cigarette costs will rise as the duties on these products increase.
While it wasn't directly mentioned, the Budget has also essentially confirmed that:
- Income tax thresholds will remain frozen, so millions will pay more in tax. Use our Income Tax Calculator to see what you'll take home from April.
Energy Price Guarantee to remain at £2,500 a year
See our Energy Price Guarantee update story for full details and what this means for your bills.
Prepayment meter customers will pay less for energy from July
From 1 July, the Government will adjust the Energy Price Guarantee so that prepay meter customers pay no more for energy than those who pay by direct debit.
Prepay households will save an average of £45 a year on their energy bills as a result of the move, according to the Treasury. For more info, see our Prepay penalty to end story.
Heat network customers to get equivalent support with energy bills
Heat networks, also known as district heating, are a way of heating a block of flats, or even a neighbourhood, using a single central boiler, with gas pipes leading into each home to supply heating and hot water. These are not currently regulated by Ofgem and the supply is seen as commercial rather than domestic.
The Government has today announced a new "higher rate of relief" for heat network customers, which will be set at a level equivalent to the support other customers get under the Energy Price Guarantee. This will be worth £860 for the average heat network customer, according to the Government.
We've asked when the new relief will come into effect and how it will work in practice and will update this when we know more.
Childcare support to be extended
There will be several changes to childcare support for parents, including:
- New Government-funded childcare hours for younger children in England. From April 2024, eligible parents living in England with a two-year-old will be eligible for 15 hours of free childcare for the first time. From September 2025, this will increase to up to 30 hours for eligible parents of any child aged nine months to school age.
It's worth noting that, while these are often referred to as 'free' childcare hours, in some cases you may need to make top-up payments, depending on the childminder’s costs.
- Upfront funding for childcare costs for those claiming universal credit in England, Scotland and Wales. Those eligible will get the first month's charges paid for them. From the second month onwards, you'll have to pay and claim back the costs, as you do now. The maximum amount you can get will also increase to £951 for one child and £1,630 for two or more children.
For full details of the changes, see our Childcare support boost story. Also see our Childcare costs guide for more information on the current support you can get, including the help available in Northern Ireland, Scotland and Wales.
Pension savers to get extra tax relief
The Government has announced three key changes to the tax relief you can get when saving towards your pension:
- The annual allowance will rise from £40,000 to £60,000 in April 2023.
- The lifetime allowance, currently £1,073,100, will be abolished entirely from April 2024.
- The money purchase annual allowance will rise from £4,000 to £10,000 in April 2023.
When combined the changes mean that many people will be able to contribute much more to their private pensions before having to pay tax. For full info, see our Pension tax relief changes story.
'Work capability assessment' for benefits to be scrapped
In a major shake-up to the benefits system, the Government has announced it will scrap the controversial 'work capability assessment', used by the Department for Work and Pensions to determine your eligibility for certain benefits, including universal credit.
The change is part of wider plans to reform the benefits system, which will also include more support for disabled people and those with long-term health conditions to find jobs and stay in work.
The Government says the changes should mean disabled benefits claimants will be able to seek work without worrying about losing financial support.
Yet, as part of the Budget, the Government has also committed to "strengthening" the way universal credit sanctions are applied, which could mean more penalties for those deemed to have failed to look for work or take up a job.
It's not yet clear when exactly these changes will take place, or how they will work in practice. We'll update this when we know more.
Fuel duty frozen again
The UK-wide cut to this tax on petrol and diesel of 5p a litre has been extended for another 12 months. It was first introduced in last year's Spring Statement and was the "biggest cut ever" on all fuel duty rates, according to the Treasury.
In addition to the extension of the 5p cut, the underlying duty itself has also been frozen for the 13th year in a row at 57.95p a litre.
The Government says this will save the average driver £100 over the next year. For help on cutting fuel costs, see our Cheap petrol and diesel guide.
Foster carers to get a tax cut
Currently, households do not pay tax on the first £10,000 they earn from fostering in a tax year.
From this April, qualifying care givers will see this tax-free allowance rise to £18,140 a year, plus £375 to £450 per person cared for each week. This represents a tax cut worth about £450 a year on average, according to the Government.
Savings and ISA allowances are frozen
The 'starting rate' for savings will be frozen at £5,000. This allows those earning less than £17,570 from employment to earn up to £5,000 in savings interest before paying any tax on it. See our Tax-free savings guide for more on how this works.
In addition, the maximum amount you can save into an ISA as an adult will stay the same at £20,000. For junior ISAs, the limit will remain at £9,000. There is also no change to the Lifetime ISA limit of £4,000. See our ISA allowances guide for more info on the different types of ISA.
Help to Save scheme extended to April 2025
The Help to Save scheme gives low-income earners claiming universal credit or working tax credit a huge savings boost of 50% on the amount saved, worth up to £1,200.
It had been due to close to new applications in September this year, but will now be extended until April 2025 on its current terms. See our Help to Save guide for more on how the scheme works and to check if you're eligible.
Alcohol and tobacco costs are set to rise
Duties on wine, spirits and bottles of beer will increase from 1 August 2023 in line with the Retail Prices Index (RPI) measure of inflation, meaning the price of a 500ml bottle of beer or a 250ml glass of wine will rise by 5p. But duty on the price of a draught pint of beer in a pub will remain frozen under the Government's new 'Brexit Pubs Guarantee'.
The price of tobacco products will also increase from 6pm today (15 March). The Government said it will increase by RPI plus an extra 2%, while the duty on rolling tobacco will increase by an additional 4%. We've asked the Government to confirm which RPI figure it'll use for the increase to both alcohol and tobacco and will update this story when we know more.
Income tax thresholds AREN'T changing – millions will pay more in tax as a result
While income tax wasn't a key topic in today's Budget, it's crucial for many people's finances. In last year's Autumn Statement, the Government said it would freeze income tax thresholds until April 2028.
The freeze means many who get a wage rise – even if it's below inflation – will end up paying more in income tax over time. Some may be drawn into a higher tax bracket (for example, some non-taxpayers may start paying 20% on a bit of income) – others may stay in the same tax bracket but will still find themselves paying a bigger proportion of their income as tax if their wages rise.
This process is known in Treasury jargon as 'fiscal drag'. To explain exactly what this means in practice, here's MoneySavingExpert.com founder Martin Lewis: "Imagine someone who currently earns £12,000 now. Because earnings do tend to increase each year, in a couple of years' time they'll earn £13,000. But because the thresholds are frozen, they will now start to pay 20% tax on some of their earnings.
"And in fact, what freezing the threshold does is that it means no matter what you earn, as your earnings increase, a bigger proportion of your earnings goes on tax. And that's how the Chancellor makes money from it."
Use our Income Tax Calculator to work out your take-home pay from April 2023.
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