Following the chaos of last autumn’s mini-budget, the announcements made this week by the Chancellor were awaited with trepidation – we explain all of the news, what it means, and how the government plans to tackle inflation and living costs.
This week, Chancellor Hunt delivered his Spring Budget, which largely focused on the cost-of-living crisis, unemployment figures and the potential for the UK economy to enter recession.
While there were no headline announcements related to the housing market, several of the changes may be important for homeowners, first-time buyers and households unsure how living costs may impact their ability to keep pace with mortgage costs over the months to come.
The UK Economy, Inflation and Recession
The Chancellor kicked off by stating that the Office for Budget Responsibility (OBR), an independent body that analyses the British public finances, has forecast amended statistics that indicate the UK will not enter recession. While the OBR predicts economic shrinkage of 0.2%, this is far less severe than earlier forecasts.
After spiking to 11.1% in October last year, before dropping slightly to 10.7% towards the end of 2022, the analytical organisation now expects inflation to reach a far more accessible 2.9% by September 2023 – less than 1% away from the governmental target.
Within the budget, the Chancellor also shared a prediction of 1.8% growth in the next 12 months, rising to 2.5% in 2025, giving investors and markets some assurance that the economy is slowly but surely moving away from record-high inflation.
Reforms to Control the Cost of Living
Given the calming but still high levels of inflation, the Chancellor announced a series of measures designed to help manage living costs:
- The Energy Price Guarantee (EPG), which caps the maximum that energy suppliers can charge, has been extended by three months. The cap of £2,500 a year for an average household is expected to be unnecessary from July when wholesale energy prices are predicted to fall.
- Childcare support for families with children under five will extend to 30 free hours from September 2025, one of several measures concentrating on getting unemployed adults back into the workforce.
- Duty on fuel has been frozen, with the £0.05 cut in fuel duty extended for a further year, having originally been due to end next month.
Landlords may need to take note of changes impacting properties with prepayment meters for their utilities. The government has confirmed that it will invest £200 million to align the charges for meters to match those paid by customers with direct debit accounts.
Spring Budget Changes to Pension Taxation
Another move engineered to try and tempt those close to retirement into the workforce relates to pension taxes. In a dual announcement:
- The annual pension contribution allowance, which sets the maximum a person can deposit into a pension scheme without a tax charge, will rise by 50% from April 2023, with a new allowance of £60,000.
- The Lifetime Allowance (LTA), previously £1.073 million, has been abolished. This cap limits the maximum any person can accumulate in all pension savings before they are exposed to additional tax liabilities.
For many homeowners concerned about the tax burden linked to retirement assets, this news may be welcome, mitigating any need to cease contributions before a fund reaches the LTA and meaning high earners can contribute larger amounts to their pension funds tax-free.
Stamp Duty News
The budget did not cover any major housing-related announcements, but the Chancellor has confirmed that those reforms introduced in the mini budget will be left as-is until April 2025. The nil-rate band will remain static at £250,000 – any property purchased up to this value will not be subject to Stamp Duty.
First-time buyers will continue to be exempt from Stamp Duty charges on properties purchased up to £425,000, with relief available on acquisitions valued up to £625,000.
For more information about any of the changes made in the Spring Budget and how aspects such as energy costs, taxation and Stamp Duty obligations will affect your property purchase or financing plans, please contact Think Plutus at any time.
