What the Chancellor’s ‘back to work’ budget means for employees
The headline measures in Jeremy Hunt’s ‘back to work’ budget will benefit expectant parents and some higher earners, but a lack of action on tax brackets will leave many workers worse off.
In the 2023 Budget, the main policy announcements for employees revolve around childcare and pension reform.
The government announced on Wednesday that, starting in September 2025, parents of one- and two-year-olds will be eligible for 30 hours of free childcare each week.
This initiative, and a series of pension reforms, are central to Jeremy Hunt’s strategy to encourage more people to rejoin the workforce.
Miles Grady, Director of Umbrella.co.uk, said: “UK childcare costs are among the most expensive in the world, with full-time fees for children under two costing an average of £269 per week. So this Budget will be very welcome news for anyone that’s planning to have children in the near future.
“Equally, some higher earners will benefit from changes to the pensions system which will act as an incentive for people to stay employed for longer.
“Unfortunately, the Budget didn’t include any plans for action on tax brackets, which means that most workers will see themselves worse off as a result of inflation, slow wage growth and fiscal drag.”
Budget 2023: Key changes for employees
Eligible parents will get 30 hours of free childcare per week for children between 9 months and four years old.
Scrapping the £1 million lifetime allowance on pensions and increasing the annual allowance from £40,000 to £60,000.
Energy bill support extended until June, but many will see bills rise from April.
The Chancellor’s pension reform plans will incentivise higher earners to work longer and save more for retirement.
The lifetime pension savings cap, currently set at £1.07 million, will be abolished, while the tax-free yearly allowance for pension contributions will rise from £40,000 to £60,000 after being frozen for nine years.
Jeremy Hunt said his budget will help fill a million job vacancies across the UK, so that firms can ‘grow faster’.
Experts believe, however, that a lack of action on employment taxes could hamper economic recovery. While the Chancellor did announce an extension of the 5p fuel duty cut and a reduction in pub alcohol taxes, he remained silent on the critical issue of tax brackets.
Fiscal drag is when tax brackets don’t rise in line with inflation or wage growth. This can force workers to pay higher rates of tax.
Miles Grady said: “At a time when wages are not keeping up with rising prices, fiscal drag is a double whammy for ordinary workers.”
For more information about flexible employment services for employees, speak to a member of the team today. Call: 01625 544 460.