- £18.4 billon boost over the next five years for parents announced in today’s budget
- NS&I annual funding target increased from £6 billion to £7.5 billion
- Thirteenth year of fuel duty freezes
- Energy price guarantee extended until July
Laura Suter, head of personal finance at AJ Bell, comments on some of the personal finance changes introduced by Jeremy Hunt in today’s Budget:
Childcare
“Parenting WhatsApp groups across the nation will be pinging with joy with the news that free childcare hours are being extended, with parents being able to claim from the time their child is nine months old. Currently working parents can claim 30 free hours for 38 weeks of the year for three- and four-years olds, but no support is offered for those with younger children.
“This move will remove the huge barrier for many in returning to work, as often childcare fees are more than they earn. This is a policy that will specifically boost women, who are typically the ones who drop out of the workforce to be a full-time parent. We know that these career gaps are big contributors to the huge gender wealth gap, from earnings to savings to pensions. If those women who want to work can afford to return to paid employment, it will not only boost the economy but the pockets of families across the country.
“The devil in the detail is that the support will be staggered, with the full scheme not brought in for another two and a half years, meaning that many parents of toddlers today will miss out and the biggest benefit will be for parents of children not even conceived yet. From April next year parents of two-year-olds will get 15 free hours, while those with younger children will have to wait until September next year to get the 15 free hours before the full 30 hours is brought in in September 2025.
“Childcare costs are now eye-watering, with the cost for a full-time nursery place for a two-year-old in London now costing £20,518 a year on average*. Someone would need to earn £24,258 a year just to break even, before you’ve even factored in commuting costs or the occasional coffee on the way to work. For many that’s already unaffordable, but as soon as you have two or more pre-school children it becomes prohibitive even for higher earners.
“What’s also key is that the government is increasing what it pays nurseries for these free hours. Until now the ‘free’ hours have been anything but, with the government paying such a low sum for the hours that most nurseries are forced to construct a patchwork of charges for parents to make up the shortfall. The government says it will allocate another £204 million from September this year to boost the amount paid to nurseries – although it’s unclear if this is sufficient to bridge the entire funding shortfall or if parents will still have to top up.
“Those on Universal Credit will benefit from two changes today: first, those moving into work or increasing their hours will no longer have to pay for their childcare costs upfront before claiming them back and second, they will be entitled to more support towards childcare fees. Currently the help they can claim is capped at £646 a month per child and hasn’t increased in almost two decades despite childcare costs soaring, but it will now rise to £951 for one child and £1,630 for two children.
“Collectively the moves will cost the government £5.3 billion a year by 2026-27 when they are fully implemented. But in theory they shouldn’t actually cost the government money, as it will see a bigger boost to revenues from parents returning to work than the scheme will cost. But parents should see this as the opening gambit. The government is facing pressure on both sides: from nurseries who can’t afford to stay open to parents who can’t afford childcare. Make no mistake, a key battle pledge of next year’s election will be childcare costs, so Mr Hunt is likely to have more up his sleeve for the election trail.”
*Based on Coram Childcare report: https://www.familyandchildcaretrust.org/sites/default/files/Resource%20Library/Childcare%20Survey%202023_Coram%20Family%20and%20Childcare.pdf
NS&I to offer better rates
“There was good news for savers buried in the detail of this year’s Budget, as the government wants its savings provider NS&I to raise even more money in the next tax year. Currently the government-backed provider was tasked with taking in £6 billion of savers money but this has now risen to £7.5 billion.
“While this might seem like a very technical point, what it means is that NS&I will have to make its products more attractive to savers – which equates to higher interest rates for savers. It also means the premium Bond prize fund will undoubtedly be boosted again, to lure in more savers.
“While the funding target is nowhere near the £35 billion set during the pandemic, we can expect NS&I to go back to its pandemic playbook and significantly boost rates across the majority of its accounts. Generally, it doesn’t want to lead the markets, but this goes out the window if it needs to drag in more of savers’ money. This has a double boost for savers, as they can get higher rates with the government-backed provider but also it will spur other savings providers to increase their rates – hopefully marking the start of another rates war.”
Fuel duty
“This marks the thirteenth consecutive year of fuel duty freezes – and it’s a freeze that no government can face thawing. Despite hinting in recent years that it would need to be unfrozen to pave the way for the government’s greener agenda, Mr Hunt doesn’t want to take on the ire of the nation’s motorists so close to a general election. On top of that, he has maintained the 5p cut in fuel duty that Rishi Sunak introduced a year ago, which means for the average 55 litre car someone will save £3.30 each time they fill up*. Taken together, the government says the moves will save motorists on average £100 next year.
“Prices at the pump have fallen significantly – petrol prices have dropped by more than 40p a litre since their peak last year and diesel prices are down by more than 30p a litre – leaving scope for Mr Hunt to ditch the cut. But any increase in fuel costs now will do nothing for the government’s ambitions of halving the inflation rate before the end of the year. Removing that 5p cut would translate into higher petrol and diesel costs which in turn would filter through to next month’s inflation figures. This move carries a £5 billion price tag for next year though, which motorists will be pleased about, but public sectors workers in the midst of pay negotiations might wonder where their £5 billion of funding is.”
*This takes into the account the fact that the 20% rate of VAT on top will be lower as the total petrol price per litre is lower.
Energy price cap
“Maintaining the Energy Price Guarantee until July will be a big relief for many households who were looking down the barrel of another huge jump in energy costs next month. The move is expected to save average households £160 and means average bills will stay at £2,500 for three more months, when hopefully the weather will be warmer and wholesale energy prices will have fallen again.
“Falling wholesale energy prices gave the government a windfall to spend, with the Energy Price Guarantee only costing a third of its expected £12 billion cost so far. This extension to the measure will add another £3 billion to the bill, still keeping the government under budget. The government gets a double whammy from the extension: lower energy bills from households and those lower energy costs helping to reduce inflation – which is crucial if they are to meet their self-imposed target of halving inflation before the end of the year.
“Those on pre-payment meters will also be handed some extra relief, as they will no longer have to pay higher rates for their energy. The warped policy means that currently the poorest and most vulnerable households on pre-payment meters pay higher costs for their energy than the wealthiest in society who pay by direct debit. It’s baffling why it’s taken the government until the tail end of the cost-of-living crisis to fix this anomaly, but it’s a welcome move nonetheless.
“Despite the measure, all our energy costs will still rise. The £400 support with energy bills we’ve all been receiving this winter will still end in April, meaning that £66 or £67 a month rebate will disappear.”
