Jeremy Hunt’s decision to scrap the pensions lifetime allowance, announced on Wednesday 15th March during his Spring Budget, has been met with controversy.
What was the Lifetime Allowance?
The lifetime allowance previously capped the amount that individuals could save into their private pension before incurring a tax charge. Previous to the Spring Budget, the lifetime allowance was set at £1,073,100, with expectations that Hunt would increase this figure to £1.8 million. However, in a surprise move he instead decided to abolish the lifetime allowance completely.
For most lower and middle earners, the scrapping of the lifetime allowance will not affect them. This decision will mainly affect higher earners as these tend to be the people who can afford to build bigger pension pots.
“It is a pension tax reform that will stop over 80% of NHS doctors from receiving a tax charge and incentivise our most experienced and productive workers to stay in work for longer”
“I have listened to the concerns of many senior NHS clinicians who say unpredictable pension tax charges are making them leave the NHS just when they are needed most”
The decision to scrap the lifetime allowance is aimed to keep people close to retirement in the workforce for longer, as well as encouraging those who have already retired to return to work. This is because there is more incentive for employees to stay in work to continue building their pension as they won’t face tax penalties for doing so. The idea is that this will help stimulate economic activity and produce economic growth.
Criticism
However, this decision has been met with controversy, with some arguing that whilst these changes would indeed combat the issue of 55% tax penalties faced by doctors, they would also give a big boost to many wealthy people.
David Brooks, head of policy at Broadstone, has argued that scrapping the lifetime allowance and increasing the annual pensions contributions has acted as a “huge tax giveaway to the wealthiest people in the country”
The following images is taken from the director of the Social Market Foundation, James Kirkup’s, twitter:
Perhaps the government should be focussing on getting more people to start building pensions, rather than helping those with large pensions make them even bigger.
Shadow Chancellor and Labour MP, Rachel Reeves stated:
“The only surprise in the budget was a huge handout to the richest one percent of pension savers […] Labour believes that the tax burden should be shared fairly. That is why I’ve announced today that Labour will reverse the changes to tax-free pension allowances. It is the wrong priority at the wrong time”
Given that Labour is favoured to win the next general election, it is a real possibility that Hunt’s scheme may not be in place for very long…
To read more about other changes announced in the Spring Budget, check out our previous blog.
by Red Star Wealth
Let’s have a look at some of the key changes announced in Jeremy Hunt’s Spring Budget earlier today.
Pensions
Hunt announced that the pensions lifetime allowance was to be abolished, meaning more people can save unlimited amounts into their private pension without incurring a tax charge.
He also announced an increase in the tax-free yearly allowance for pension contributions, taking it from £40,000 a year to £60,000 a year.
Fuel, Alcohol and Tobacco
The 5 pence cut to fuel duty on petrol and diesel was due to end in April but Hunt has announced a freeze of fuel duty for another year, helping keep down costs for motorists.
Tax on tobacco is set to rise by 2% above the rate of inflation, or for rolling tobacco, 6% above inflation.
Most alcohol duties will be rising in line with inflation as of August, meaning supermarket prices for booze will increase. However, Hunt has also mentioned a draught relief scheme to be implemented from August 2023 which should keep pint prices in pubs down.
Energy
Energy bills for the typical British household were due to rise to £3,000 a year from April but the energy price guarantee has now been extended until the end of June, keeping this figure at £2,500 instead.
Hunt has that the government will invest £20 billion over the next 2 decades into low carbon energy projects.
Nuclear energy will now be classed as environmentally friendly for investment purposes, meaning it will qualify for the same investment incentives as renewable energy.
Hunt has also stated that £63 million will be given to leisure centres to help them cope with rising swimming pool heating costs and investment to become more energy efficient.
Childcare
One of the main highlights of the budget is the expansion in state-funded childcare. Hunt has promised up to 30 hours a week of free childcare for eligible households with children as young as 9 months. This won’t be fully implemented until September 2025 but will be rolled out in stages from April 2024.
Families on universal credit are set to receive childcare up front rather than in arrears. Instead of a cap of £646 per month per child, this will now be increased to a maximum of £951.
Hunt has further announced relaxed rules in England to allow childminders to look after more children.
He’s also increasing the funding paid to nurseries providing free childcare by £204 million from September this year, rising to £288 million next year.
Corporation Tax
Corporation tax will indeed be increasing, taking it from a 19% tax on taxable profits over £250,000, to a 25% tax. However, Hunt has also announced a new policy of full capital expensing over the next 3 years which will allow companies to deduct money invested into new machinery and technology from their profits, helping to reduce their tax liability.
Support for the Vulnerable
Hunt has announced a new system of Universal Support across England and Wales. This is a new voluntary employment scheme for those who are disabled or have health conditions. Up to £4,000 per person will be invested to help support around 50,000 people a year in finding suitable work which caters to their needs.
Hunt has also announced funding of:
£400 million for mental health and skeletal support
£3 million to help those with special needs to enter the workforce
An additional £10 million over the next 2 years to help charities in England who work in suicide prevention
Other Notable Points
-£200 million this year to help local councils in England repair potholes
An extra £11 million in defence budget funding over the next 5 years
by Red Star Wealth
Government plans for a new law on minimum service levels during industrial action could leave workers being denied their right to strike.
Waves of Strikes
There is a seemingly constant wave of strikes recently due to huge hikes in inflation without adequate wage increases to match. This is causing huge amounts of disruption for the UK public, which can certainly be frustrating, but that is the point of strikes!
If we can recognise that these workers striking is causing this much disruption, we can also recognise how much we rely on their service. If we need their services this much to go about our daily lives, surely we can also understand why they deserve to be fairly paid.
If we take nurses as an example, their average pay has failed to increase in line with inflation or with private sector wage increases for over a decade, meaning real wage decreases over time. Over the course of a year between 2021 and 2022 in England, 1 in 9 nurses left active service. We need to ask ourselves why, and the answer seems quite clear… why would people want to work somewhere heavily understaffed, where they are overworked and underpaid?
Since June 2022, many workers have undergone strikes, including (but not limited to) the following professions:
Rail employees
Civil servants
Nurses
University staff
Border force staff
Ambulance workers
Midwives
Postal workers
Physiotherapists
The Strikes Bill
The Trade Union and Labour Relations Act 1992 has protected employee rights for decades and this protection is now at a real risk of erosion. The Strikes (Minimum Service Levels) Bill would amend the 1992 Act to “enable employers to issue work notices to require the minimum service levels to be delivered for particular strikes in specified services.”
The Union would then be expected to take reasonable steps to ensure the compliance of their members, and if failing to do so, would face paying huge damages. The Bill would essentially force Unions to go against the best interests of their members.
Its Implications
The Strikes Bill has now been passed in the House of Commons (315 votes to 246). It now needs to pass through the House of Lords to come into force.
Grant Shapps, the Secretary of State for Business, Energy and Industrial Strategy, has claimed that Labour, and others in opposition, are “putting lives at risk” by planning to vote against this bill.
However, many have criticised it for removing workers’ rights. If the bill passes, hundreds of thousands of people working in the public sector will be unable to exercise their right to strike. This means that many who have democratically and legally voted for strike action will be required to work during periods of industrial action, and face being sacked if they fail to comply.
The Trades Union Congress have described the bill as a “draconian piece of legislation” and that “forcing unions to send their members across picket lines is a significant infringement of their freedoms.”
UNISON assistant general secretary, Jon Richards, has described it as “a bill that gives all powers to the government and infringes workers’ rights, undermines democracy and doesn’t allow proper oversight by Parliament.”
If you enjoyed reading this blog, you might enjoy our previous post discussing the Government’s new statutory code on ‘fire and rehire’ practices.
by Red Star Wealth
The Government’s new statutory code on ‘fire and rehire’ practices falls short of properly protecting workers.
What is Fire and Rehire?
Fire and rehire is a practice wherein an employer dismisses an employee and rehires them on new terms, which are usually less favourable.
The New Statutory Code
On 24th January, the government announced that they were cracking down on employers using fire and rehire practices.
This new statutory code is intended to make it clear to employers that they aren’t allowed to threaten their staff with dismissal to pressure them into accepting less favourable terms. The code would also apply when employers attempt to replace their workers with new staff on worse terms.
Once this code is implemented, Courts and Employment Tribunals will be able to take it into account when considering relevant cases, including those regarding wrongful dismissal. If an employer is found to flout this code, they will have the power to increase the relevant employee’s compensation by 25% in certain cases.
P&O Ferries Scandal
Last year, P&O Ferries sacked 786 seafarers without prior consultation, with a plan of replacing them with cheaper agency workers.
Chief executive, Peter Hebblethwaite, admitted the company had broken the law with their actions due to their failure to consult trade unions in good time before the sackings, instead choosing to make the workers redundant with immediate effect.
Criticism
This code falls short of the outright ban on fire and rehire practices that many unions have called for. The Trade Union Congress general secretary said “A general code of practice is not going to stop another P&O-style scandal from happening, and it won’t deter bad bosses from treating staff like disposable labour”
Labour’s deputy leader, Angela Rayner, commented, “This code isn’t worth the paper it’s written on. It’s shameful that nearly a year after the P&O Ferries scandal the Conservatives can only offer this weak half-measure, which they admit will allow fire-and-rehire tactics to continue”
Sharon Graham, the general secretary of Unite the Union described it as “an insult to workers and their families” and called on the government to ban fire and rehire practices for good.
This isn’t a New Issue…
The P&O Ferries scandal is certainly not the first of its kind. In April 2021, hundreds of British Gas engineers were sacked after refusing to sign up to new terms and conditions which would have seen them working longer hours and facing a pay cut.
Following this issue, a Survation poll was conducted on behalf of GMB, which found that 76% of those who answered believed that the practice of fire and rehire should be illegal. This included 71% of Conservative voters. Therefore, it is certainly not just criticisers of the Tory party who want workers to have protection from what is, quite frankly, an exploitative labour practice.
A Consultation is taking place over the 12 weeks following this announcement on 24th January. Here, the public and interested groups can share their views on a new statutory code for employers. You can take part by clicking here.
by Red Star Wealth
With the Bank of England’s emergency bond buying support set to end today (Friday 14th October), we think it’s important to fill you in on what exactly has been going on.
The Mini Budget
Kwarteng’s mini-budget on 23rd September 2022 saw the Government announce enormous tax cuts with very little explanation as to how these would be funded. This has triggered strong waves of uncertainty which have in turn affected the UK’s financial situation.
It led to a steep drop in the value of the pound as well as rises in government borrowing costs.
Government Borrowing
One of the ways in which the Government generates enough money to fund its spending plans is by selling government bonds (also known as gilts) to investors. This acts as a form of debt which is paid back over time with the addition to interest.
They sell these bonds to investors such as large pension funds and big banks on international markets.
These investors have been demanding much higher interest rates to lend to the UK government because they have concerns over whether their tax cut plan will actually work.
What is the Link with Pension Funds?
Pension funds tend to invest in bonds as they are seen as a low-risk investment, giving a low but reliable return over a long period of time. They also buy a form of insurance to protect the value of these bonds.
As government borrowing costs increased, insurance providers began charging a higher rate of interest.
In order to afford these extra payments, many pension funds began selling their bonds, with further reduced their price and pushed up their interest.
This created a negative spiral, as the more bonds pension funds sold, the higher the cost of government borrowing became, meaning insurance payments rose, meaning even more bonds were sold, and so on, and so forth.
Bank of England Emergency Intervention
The Bank of England (BoE) decided to implement an emergency bond buying scheme as a temporary measure to stop the prices of government bonds falling any further and thus limit the need for pension funds to sell any more of them.
It did this by buying lots of government bonds. By buying these bonds, government borrowing costs should reduce, as it eliminates the need to pay those huge interest rates demanded by investors we mentioned earlier.
By buying these bonds, the BoE has helped stabilise their price, preventing further sales from pension schemes that could ultimately cause their collapse. They have essentially halted the market turmoil that was putting pressure on pension funds.
Despite announcing that they would buy up to £65bn bonds, with a daily purchase limit of £5bn a day, they have only bought around £5bn in total.
Only a Temporary Measure
The BoE’s intervention is a temporary measure aimed at maintaining financial stability. Their bond-buying scheme is due to end today, despite pension funds trying to get them to extend their intervention.
On Wednesday, when they announced that their emergency support would end on Friday as planned, the price of 20-year UK bonds hit new lows, with interest rates going up to levels not seen since 2002.
However, the idea behind the BoE stopping their intervention is that they expect demand to increase as pension funds rebalance their portfolios and stabilise. Think of the measure of them allowing pension funds some time to get back on their feet.
The BoE has not completely withdrawn support either. They have announced further measures to help pension fund sthat have been negatively affected by the recent market volatility. Under this measure, funds will be able to use a wider range of assets to access money to meet short-term financial needs. This should mean less pension funds having to turn to selling government bonds to raise cash, which is what was happening after Kwarteng’s mini-budget.
What a mess! If you’re still worried about what this means for you and your pension, reach out to a financial adviser for help.
