Budget 2023 for pensions and families: Lifetime tax-free pension allowance scrapped and free childcare boost in ‘back to work’ budget

Jeremy Hunt has abolished the lifetime tax-free pensions allowance and introduced free childcare for youngsters under three in a budget aimed at getting people back to work.

The chancellor announced his budget plans on Wednesday to get older people back in work and to help parents, mainly women, who cannot afford to go back to work due to high childcare costs.

For older people – who he said he preferred to describe as “experienced” – Mr Hunt has increased the annual tax-free pension allowance and abolished the Lifetime Allowance.

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The changes to pensions are:

• Annual tax-free pension savings allowance increased by 50% from £40,000 to £60,000

• Lifetime Allowance on pension savings scrapped so people will now be allowed to put aside as much as they can in their private scheme without being taxed (currently a £1m threshold)

Read more on the budget:
Budget live: Hunt announces ‘crowd pleasers’ – as pension and childcare changes go further than expected
The key points of Chancellor Jeremy Hunt’s speech

On childcare, Mr Hunt announced:

• Ratios of two-year-olds to staff at nurseries can be increased from 1:4 to 1:5 – this is optional

• Parents on Universal Credit who are moving into work will have their childcare costs paid upfront by the government

• The maximum Universal Credit parents can claim will be increased to £951 for one child and £1,630 for two children – an increase of almost 50%

• Schools and local authorities will be funded to increase wraparound care so parents can have their children looked after between 8am and 6pm by September 2026

• In households where all adults work at least 16 hours, every child from nine months old to school age will get 30 hours of free childcare per week by September 2025

There will be a staggered introduction:

• 15 hours of free care a week for two-year-olds, from April 2024

• 15 hours of free child care for all children from nine months and up, from September 2024

• The free child care will not apply to those who work less than 16 hours a week, those studying or training.

The Office for Budget Responsibility, which provided a financial forecast alongside the budget, said the childcare changes would mean around 60,000 parents of young children would enter employment by 2027-28.

Talking at a nursery after delivering the budget, Mr Hunt admitted many more nurseries and childminders are needed to fulfil the 30 hours commitment.

“We’re willing to start it as soon as possible, but the advice we’ve had is this is such a big change in the market that it wouldn’t be possible to do it overnight,” said the chancellor.

While the Tories lauded the announcements as Mr Hunt’s “rabbit out of the hat” moment of the budget, childcare providers had a mixed reaction.

Neil Leitch, CEO of the Early Years Alliance, said changing the staff-to-child ratios is “appalling” and it is an economic decision that parents and teachers do not want.

“It’s not just about economics, children are not commodities, we’re talking about children’s lives,” he told Sky News.

He added that there is currently not enough funding for three and four-year-olds, who are entitled to some free childcare already, so this will simply place more pressure on providers.

“They should have done this a long time ago, parents are on their knees, providers are on their knees,” he said.

Joeli Brearley, founder of Pregnant then Screwed, said the campaign group is “really pleased in the significant investment” in the childcare sector as it will make “an enormous difference to parents who are really struggling to pay for those eyewatering fees”.

However, she said they are concerned about the strategy for workers who are “leaving in droves” due to being paid “appallingly badly” due to years of underfunding.

“Without the workforce, those places are impossible to deliver,” she told Sky News.

“There’s no point in rolling out free hours if we don’t ensure the providers can deliver them.”

Labour hit out at the pension plan, with Sir Keir Starmer saying: “The only permanent tax cut in the budget is for the richest 1%. How can that happen?”

He accused the Conservatives of a plan for “managed decline, Britain going backwards, the sick man of Europe once again”.

“After 13 years of Tory sticking plaster politics… working people are entitled to ask am I any better off than I was before?” he said.

“The resounding answer is ‘no’ – and they (Tories) know it.”

Mr Hunt said he had decided to make the pension changes in reaction to senior NHS clinicians saying unpredictable pension tax charges are making them leave the NHS early “just when they are needed most”.

“I have realised the issue goes wider than doctors. No one should be pushed out of the workforce for tax reasons,” he said.