Budget 2023: what it means for your money

Extra pension tax breaks for higher earners, more free childcare for working parents and all-around help with energy bills top the list of the chancellor’s measures for consumers, householders and savers.

Pensions allowances for higher earners will rise in an effort to discourage early retirement. The £40,000 cap on tax-free annual pension contributions — frozen for nine years — is rising to £60,000.

The £1.073mn tax-free lifetime allowance on pension pots is being scrapped. The chancellor went further than pre-Budget leaks which suggested he might raise the limit to £1.8mn. He said: “No one should be pushed out of the workforce for tax reasons.”

For those who have stopped work and ceased pension contributions and now wish to resume paying into a defined contribution pot, the money purchase annual allowance (MPAA) will rise from £4,000 to £10,000.

For very high earners, the so-called taper rules will be eased to allow for increased tax-efficient pension savings. Currently, taxpayers lose £1 of annual allowance for each £2 of “adjusted income” above £240,000. This threshold will rise to £260,000.

Free childcare for working parents in England is being extended from three- and four-year-olds to children aged from nine months up to their third birthday. Available for up to 30 hours a week, it will be implemented in stages by September 2025.

Families on universal credit will receive childcare support up front, instead of having to claim it back later, and will see an increase in the £646 monthly limit per child to £951 for one child and £1,632 for two children.

The government will also increase the funding that nurseries receive for the free hours, addressing the concerns of providers, which have insisted the money they receive per hour fails to cover costs. Meanwhile, after-hours care for school-age children will be expanded.

On energy, the price guarantee capping typical annual household energy bills at £2,500 will be extended for a further three months to the end of June — worth £160 in total for a typical household.

So households won’t feel the full force of Ofgem’s price cap — which stands at £3,280 — for these three months. The Treasury says lower wholesale gas prices are expected to feed through to lower household energy bills from July, when Cornwall Insight data suggests the Ofgem price cap will drop to an estimated £2,100 a year for a typical household.

Also, the energy premium for prepayment meters will be scrapped from July, saving 4mn poorer families £45 a year. Charges will be comparable to direct debit energy charges, says the government.

However, with inflation increases outstripping pay rises, the impact of income taxes will rise in real terms. Thresholds are not being lifted, so more people will pay income tax at basic and higher rates than before, as they are frozen until 2028.

As previously announced, the yearly capital gains tax-free allowance will halve to £6,000 from April, and to £3,000 in 2024, when those liable for CGT will pay up to £2,604 more than in the current tax year.

The allowance for dividends will drop too from £2,000 to £1,000 in the new tax year, then to £500 from April 2024, bringing it to one-tenth of the £5,000 allowance when it was introduced in 2016.

Alcohol duty will be affected by a number of changes announced in the budget. To help pubs, the chancellor increased draught relief, meaning taxes on draught beer and cider will be up to 11p lower than the duty on similar products in supermarkets. This will also apply to pubs in Northern Ireland because of the Windsor framework.

The chancellor also confirmed that from August alcohol duty will be increased in line with inflation, ending a years-long freeze on the tax. From August, the government is also set to introduce its long-awaited new alcohol taxation system, which will charge alcohol duty according to the strength of drinks across the board, increasing taxes on stronger red wines and ciders. Tobacco duty will also be uprated.

Fuel duty will be frozen for another year, with the chancellor extending a 5p per litre cut introduced last year in the wake of rising prices following Russia’s invasion of Ukraine.

The chancellor is scrapping a planned rise under the fuel duty “escalator”, which was intended to raise the levy every year, but has been frozen every year since 2011. The Treasury estimates the measures will save the average motorist £100 in a year. Fuel duty is 52.95p per litre.

The promotion of tax avoidance schemes to contractors, freelancers and temporary workers will become a potentially criminal offence under proposals laid out in the Budget.

The government said this would help up to 2.4mn contractors who could unwittingly become involved in tax avoidance through the agencies they trust to handle their tax affairs, only later to face thousands of pounds in unexpected future tax bills and penalties as a result.

National Savings & Investments, the government-backed savings bank, has been asked to target issuing £7.5bn worth of premium and savings bonds in 2023-24, as the Treasury attempts to broaden its funding sources.

Reported by Mary McDougall, Peter Campbell, Oliver Barnes, Lucy Warwick-Ching, Bethan Staton, James Pickford and Stefan Wagstyl