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The new budget was announced as the country faces widespread industrial action, the continued cost of living crisis and record inflation. The first big budget since Kwasi Kwarteng’s budget under Liz Truss tanked the economy, it comes while the country faces the biggest ever fall in living standards. Moreover, projections are that the country’s tax burden is to reach a new post-war record.

You’ll likely have heard that this Spring Budget has some good and some bad parts, so at The Salary Calculator, we’ll guide you through what you need to know and how you’ll be affected. We’ll walk you through the following:

• The budget highlights
• Pension pot changes
• How your take-home pay will likely be affected

Budget highlights

While this Spring budget sent fewer shockwaves across the UK (and the world) in comparison to the last, there are a number of budget highlights to take note of.

The planned rise to the Energy Price Guarantee (EPG) has been delayed, which means that it will remain at its current level for another three months; this means that the average household bill will stay at around £2,500 a year. Further to this, prepayment energy meter bills will be aligned with direct debit, leading to savings of around £45 a year for prepayment customers.

Further, the freeze on income tax and national insurance thresholds has been extended until April 2028. This means that the income tax personal allowance will stay at £12,570 until April 2028. The threshold for top-rate taxpayers of 45% will also fall from £150,000 to £125,140.

Childcare support was another key highlight in the budget. Currently, according to the OECD, the UK has the most expensive childcare costs than anywhere else in the economically developed world; so these new measures are long overdue.

There will be a phased introduction of this enhanced childcare support, as follows:

• From April 2024, working parents with children two and over will be given 15 free hours a week.
• From September 2024, these 15 hours will be extended to all children over nine months old and be introduced from maternity leave’s end.
• From September 2025, those who are eligible with children under the age of five will be provided with 30 hours of free childcare.

In addition, there will be a change in how support is delivered to those on the lowest incomes. For those using the Universal Credit system, childcare costs will be received upfront. That being said, the childcare support changes have not been without criticism. For example,

Child Poverty Action Group’s Chief Executive Alison Garnham outlined that the stringent job-search requirements for parents on universal credit (UC) are “concerning.”

In April, the National Living Wage will rise to £10.42 per hour from £9.50 for over 23-year-olds. Meanwhile, for those:

• Aged 21 to 22 years, it will rise to £10.18,
• Aged between 18 and 20, it will increase to £7.49,
• Aged 16 to 17 and apprentices, it will rise to £5.28.

Additionally, further to Hunt allocating local authorities the power to charge more Council Tax without holding a referendum (5%), from 1 April, 2023, millions will be faced with the biggest council tax hike ever, with three in four councils increasing council tax by the maximum amount allowed.

For consumers, it’s also worth noting that there will be a 10.1 per cent rise in alcohol duty rates in line with the Retail Price Index (RPI), which means that a bottle of wine could increase by 44p. However, due to the Draught Relief scheme, the tax on draught beers will remain the same from 1 August. Duty rate on all tobacco products will rise by 2 per cent above RPI inflation, too. Hand-rolled cigarettes, specifically, will see an additional 6 per cent rise above RPI.

Pension pot changes

The budget detailed significant changes to pensions. The annual pension allowance (how much you can pay into your pension and get tax relief) was originally £40,000 or your total earnings, whichever was lower, however from 6 April 2023, it will be a maximum of £60,000.

Additionally, while the lifetime allowance (the total amount you can pay into your pension during your lifetime) is currently £1,073,100 and was intended to stay this way until 2026, in the budget, it was announced that the lifetime allowance will be removed completely from 6 April 2023.

How will your take-home pay be affected?

Everyone’s take-home pay will be affected by the budget announcement differently depending on their earnings, whether or not they have children, are retired, or have student loans.

For example, because the tax brackets have been frozen and are not adjusting to keep pace with inflation, experts say that both basic and higher taxpayers will face what economists call “fiscal drag”. The Office for Budget Responsibility estimates that this will create an additional 3.2 million new taxpayers, with 2.6 million more people paying the higher rate of tax.

Further, changes to student loans mean that the Student loan repayment threshold will drop from £27,295 to £25,000 for those starting courses in September 2023. The thresholds are as follows:

• If you’re on a Plan 1 student loan (you started your course before 2012), you’ll begin repaying when your income is over £22,015 a year,
• If you have a Plan 2 student loan (you started your course between 1 September 2012 and 31 July 2023), you’ll start repayments at £27,295 a year,
• If you’re on a Plan 4 student loan (you’re a Scottish student who started your course anywhere in the UK on or after 1 September 1998), you’ll only repay once your income has exceeded £27,660 a year,
• Those on a Plan 5 student loan (you started your course on or after 1 August 2023), will start repaying their loan when their income goes over £25,000 a year,
• For those on a Postgraduate Loan repayment plan (a Master’s Loan or a Doctoral Loan), repayments begin at £21,000 a year (before tax and other deductions).

If you’re on Plans 1, 2, 4 or 5, and your income exceeds the threshold, you’ll start repayments at a rate of 9%, and 6% if you’re on a Postgraduate Loan plan.

At The Salary Calculator, we know that working out what you owe can be a bit of a head-scratcher, so we’ve simplified things with our updated Take-Home tax calculator. To get a breakdown of how you’ll be affected by the budget, head over here.