Budget announces childcare expansion, pension tax changes and higher benefits conditionality

Jeremy Hunt's Budget, delivered on 15 March 2023, combined an expansion of free childcare, the scrapping of the lifetime limit on tax-free pension savings and a significant rise in benefits conditionality, according to the Resolution Foundation¹.

The Resolution Foundation described the back-to-work measures as "a story of carrots (extra cash for childcare or lower taxes on big pensions to encourage people to work) and sticks (a significant rise in benefits conditionality, requiring 800k more people to work)"¹. On conditionality, it said the Chancellor now expects more people on Universal Credit with children, and everyone in a couple, to work, where previously one partner could work a lot without the other having to¹. The childcare element is expected to bring 60,000 more people into work, according to the Office for Budget Responsibility¹.

The Resolution Foundation said poorer households already had other routes to state support for childcare and so gain less from the new 30 hours free offer, while the pension tax change mainly benefits those with large pots¹. It put the cost of scrapping the lifetime limit, then set at £1m, at £835m¹. It said doctors make up 16 per cent of those with large pensions of £750,000 or more, and around a quarter, 27 per cent, of those whose pension pots are already worth £1 million or more; 7 per cent work for universities and half are in the private sector, mainly finance and manufacturing¹.

On the wider tax picture, the Resolution Foundation said taxes are up because public spending is up, both by around 4 per cent of GDP post-pandemic, with a 1.5 per cent of GDP increase in spending on debt interest and a similar increase on day-to-day public services¹. It said those two changes alone explain 75 per cent of the rise in spending and taxes¹. It added that the UK's current rise in taxes will leave it with fairly normal levels of taxation compared with other advanced economies, and that the UK was unusual in not seeing significant rises during the 1970s and 1980s¹.

Why it matters for households

The conditionality change affects people on Universal Credit with children and couples, where both partners may now be expected to work¹. The childcare offer is aimed at working families, though the Resolution Foundation said poorer households gain less from the new 30 hours because they already had other routes to state support, while noting poorer parents gain from smaller changes to childcare support in Universal Credit¹. The pension change affects people with pots approaching or above £1m, a group the Resolution Foundation said is concentrated in the South of England and in the private sector¹. The £835m cost of that measure sits alongside the wider rise in spending and taxes it identified¹.

What happens next

The Resolution Foundation said the Budget's back-to-work measures are expected to bring 60,000 more people into work, against a history in which 989,000 more mothers are in employment, and 508,000 more mothers of children under 5, than if 1997 employment rates had persisted¹. It said it is not clear whether coupled mothers' employment rates, which it put at possibly topping out at 80 per cent, can rise further¹. No further dates for the measures were reported¹.