What does the latest government Budget mean for your money?

1. The Energy Price Guarantee will remain at £2,500 a year until end of June

It’s been nearly a year since we started having to pay huge prices for gas and electricity. Up until April 2022, the maximum price set by Ofgem (the energy regulator) was around £106 a month for the average household. Overnight, that cap jumped to £165, with a planned rocket to £296 in October. That prompted the government to launch an Energy Price Guarantee, which limited average energy bills to £208 a month (or £2500 a year) – still almost double where it used to be.

In April, that guarantee was due to rise by 20% to £250 a month (or £3000 a year). But the Chancellor has now said the £208 (£2500) limit will stay in place until the end of June.

The good news is that wholesale energy prices are now on their way down, partly thanks to a relatively mild winter. In his Autumn Statement, the Chancellor assumed an average gas price of £3.40 per therm but last week’s prediction was less than half of that at just £1.50.

When Ofgem looks at its price cap again, analysts Link opens in a new window say it could be set at around £2100. That would probably mean the government would scrap its price guarantee and allow the price cap to take precedence once more, which could lead to average bills falling by up to 20%.

The energy crisis has also highlighted the £45 a year premium paid by those on prepayment meters, which is now to be scrapped. People who don’t pay by direct debit, however, will still face a higher tariff.

TIP: Your supplier has probably hiked your direct debit based on unchanged prices and unchanged energy usage. If your account is at or close to a zero balance by the end of April, you should probably let your credit build up over the summer months as normal because this should help you pay for your winter energy usage. But if you are already well in credit by May 1, you are entitled to that surplus cash so make sure you ask for a refund - it’s in your rights Link opens in a new window.

2. Childcare changes to help working parents

The chancellor’s ‘big bazooka’ measure was not about tax, but about toddlers.

If you are a parent using early years childcare, you’ll be painfully aware of how expensive it is. Full-time care for a 1-year-old costs an average of almost £14,000 a year, according to the Women’s Budget Group Link opens in a new window. This is starting to prevent many parents (particularly mums) from going back to work, as they decide to stay at home to avoid spending most of their take-home pay on childcare.

The chancellor will invest £5.3billion in childcare by 2027/2028 to try and solve this problem. The current offer of 30 hours free childcare a week for 3-4 year olds will be extended to younger children, going right down to nine months old. All parents in a household must be working at least 16 hours a week, and the scheme only applies in the 38-week school year.

The change won’t happen immediately, partly because it will take time to address a funding squeeze on nurseries, which has resulted in significant differences Link opens in a new window in the cost and availability of childcare depending on where you live. The government hopes that doubling childminder payments and increasing funding for toddler places in nurseries by 30% will help. If this problem can be solved, then parents with a 2-year-old at the nursery could benefit to the tune of £6500 a year.

But bear in mind that a 1-year-old today will be aged 3 and a half before the full 30 hours for under-3s is on offer to its parents in September 2025. Meanwhile, an initial 15 hours will be on offer for 2-year-olds from April next year, extended to under-2s in September 2024.

But changes to childcare for families on universal credit will happen much sooner. Parents in this position will be getting payments upfront from the summer, as opposed to having to claim them back at a later date, and the amounts they get will rise too (£950 for one child or £1630 for two Link opens in a new window).

The government is also promising to increase funding from September 2024 for ‘wraparound care’ (breakfast and after-school clubs) in England. It is only on offer in one out of three primary schools. Childcare policy is devolved to the Scottish and Welsh governments, however; they can expect some additional funds thanks to the Chancellor’s spending pledges and may choose to follow suit.

TIP: Applying for nursery places can be a minefield. Find out all you can about your local provision and do your homework on all the details of the application process Link opens in a new window.

3. Inflation linked rises in food but good news for motorists

When it comes to your money, inflation steals your hard-earned cash, and even increases your tax bill. It rocketed from 0.7% at the start of 2021 to 10.5% by the end of 2022 and was still 10.4% in February this year.

Shoppers won’t be surprised to learn that in January food price inflation was officially still at a whopping 16.8%, almost the same as a month earlier. That led to one in ten reporting they had often or sometimes run out of food and could not afford to buy more in the previous month, the Office of National Statistics Link opens in a new window reported. Added to that, we’ve recently seen a rationing of fresh fruit and vegetables due to a supply crisis linked to weather and the Ukraine war.

The most encouraging statistic in the Spring Budget is perhaps the prediction that inflation will fall to 2.9% by the end of this year. But that is mostly down to a drop in energy prices, with food price inflation expected to remain high for some time to come. A modest help will be the freezing of the fuel duty, which means motorists will dodge a planned 12p a litre rise.

It’s no great consolation that the likely fall in our real disposable incomes in the two years to April 2024 is now 5.7%, rather than 7.1% as inflation continues to outstrip the average rise in earnings. Then there is the issue of income tax allowances. From April, there will be a five-year freeze on the £12,570 we are allowed to earn before paying basic rate tax. By 2028, if the freeze holds, over three million more people will find themselves in the 40% tax band, which will continue to kick in at earnings above £50,270. High-earners bringing home more than £100,000 will continue to pay 60p in every extra pound of income up to £125,140 where the 45% band begins.

For those lower down the income scale, the government will be paying out its final Cost of Living Payments Link opens in a new window of £900 (given in three separate payments and for those on means-tested benefits), £150 (for those on certain disability benefits) and £300 (for pensioner households).

TIP: Keep an eye on offers from the main supermarkets to keep your costs down. For example, Iceland and Food Warehouse offer the over-60s a 10% discount on Tuesdays Link opens in a new window. Other offers may be in the pipeline so it may be worth subscribing to newsletters and downloading retailers’ apps to stay on top of the latest deals.

4. Some mortgage rates have slid back to below 4%

Housing is one of the nation’s biggest personal finance concerns. It wasn’t mentioned in the Chancellor’s statement on the Spring Budget, but that doesn’t mean the outlook for mortgages and rent isn’t shifting.

The markets calmed down after the chancellor’s autumn statement with some rates still available below 4%.

And what about house prices? The Budget forecast is for a 10% fall over the next two years following a pandemic property boom, as transactions drop by 20%. But headline numbers are UK-wide averages and take no account of regional and local property markets. So, we’ll have to wait and see.

TIP: Nobody knows where rates are going. Many brokers are now advising people whose fixed rate deals are ending soon that it may make sense to fix a new deal now, especially if you want certainty. Check out Virgin Money’s range of mortgages Link opens in a new window.

5. Savings and Investments

The chancellor didn’t say anything about savings in his Spring Budget, so it’s up to individuals to keep scanning the market for the best deals. For fans of Premium Bonds, there’s a likelihood that the prize odds will improve slightly as National Savings & Investments is being asked to raise 25% more cash for the government coffers. For those who want guaranteed interest rather than a flutter, the possible good news is that higher rates on NS&I products could well push savings rates generally higher.

Remember that basic rate taxpayers can still earn £1000 in interest, and higher rate payers £500, before paying tax on it. Also unchanged are the £20,000 ceiling on ISAs and the £9,000 limit on Junior Isas/Child Trust Funds. However, there’s a harsher regime on the way for stock market savers. The dividend allowance is being halved to £1000 in April, and the capital gains allowance more than halved to £6000.

One group with something to cheer is the over-55s who have tapped into their private pensions but now want to rebuild their savings. They will be able to top up their pension by up to £10,000 a year, rather than the current £4,000 which is seen as a dampener on going back to work. It’s called the Money Purchase Annual Allowance and was originally set at £10,000 when introduced in 2015. Also aimed at getting over-50s back to work is the offer of 60,000 ‘returnerships’ Link opens in a new window – more flexible apprenticeships for older workers.

The budget headline-grabbers were the annual limit on private pension contributions, raised from £40,000 to £60,000, and the scrapping of the £1.07m lifetime pension allowance. But while contributions and their ongoing tax benefits will have no limit, the 25% tax-free slice is frozen at its current ceiling of £268,275.

TIP: Decent interest rates make it more worthwhile than ever to keep your cash in the best place until you actually need it. Look for an account which is both convenient and competitive, such as Virgin Money’s M Plus saver Link opens in a new window which links a current account Link opens in a new window to a savings account.

So there we go – whilst the recent Spring Budget wasn’t a game changer for our household finances, at least the big picture is slowly improving, and with that comes some opportunities to make the most of our money.