As anticipated, no tax cuts were announced. The two major tax announcements were a reform of pensions tax and ‘full expensing’ of capital investment for companies.
The headline tax measures are aimed at incentivising business investment and breaking down barriers to entering and staying in the workforce, focussing on various groups; young adults in care, the disabled and long-term sick, parents with children under five years old and early retirees, particularly NHS doctors.
To encourage early retirees and the ‘economically inactive’ to return to work a number of changes to pensions tax were announced.
The pension lifetime allowance charge will be removed from April 2023 and the LTA abolished from April 2024, which was a big surprise.
The pension contributions annual income tax allowance (the maximum permitted annual saving to avoid a tax charge) is to increase by 50 per cent from £40,000 per annum to £60,000 from the 2023/24 tax year, and the income level at which it will be tapered increases from £240,000 to £260,000.
Not everyone is a winner.
The minimum tapered annual allowance for pension contributions and the annual money purchase allowance for contributions by existing pensioners will increase to £10,000.
The chancellor specifically referenced the target audience of NHS clinicians who are currently disincentivised from remaining at work because of punitive charges if the LTA is exceeded, but many wealthy individuals will benefit from this measure.
However, not everyone is a winner.
The freezing of personal income tax allowances until April 2028 and reduction in the capital gains tax exemption, both previously announced, together with wage inflation mean more taxpayers will be dragged into the tax net.
The chancellor did not bow to pressure to reduce the top corporation tax rate from 25 per cent, citing the fact that other economies with lower rates had not achieved higher levels of business investment.
But the big ticket item for businesses is full capital expensing relief for companies, a generous replacement of the super deduction which was due to end on March 31, 2023, effective from April 1, 2023.
It will provide a full deduction for qualifying plant and machinery investment in the year the investment is made, over the next three years.
This measure is to be made permanent as soon as economic conditions around debt levels permit.
The economic sentiment is that this measure is successful in boosting investment and will have the most positive impact on productivity levels.