Today’s “mini budget” was anything but; so much so that it should have been billed the “not so mini” budget.
The newly appointed chancellor, Kwasi Kwarteng, stood up at 9:30am and announced a host of measures, some of which we were expecting but there were far more that took us all by surprise; which left us questioning “if this doesn’t go to plan, how on earth are we going to pay for this?”.
The Chancellor unveiled his new growth plan to:
- tackle energy costs
- bring down inflation
- support businesses and households
The plan set the ambitious target for 2.5% trend of growth, with the aim of securing sustainable funding for public services and improving living standards for everyone.
Cuts to Stamp Duty Land Tax aims to increase additional residential investment, boost spending on household goods and support the hundreds of thousands of jobs in the property industry, from removals companies to decorators.
The plans to tackle the biggest drag on growth – the high cost of energy driven by Vladimir Putin’s invasion of Ukraine, which has driven up inflation – has already been issued, providing:
- Households: the Energy Price Guarantee will save the typical household £1,000 a year on their energy bill
- Businesses: the Energy Bill Relief Scheme halving the cost of business energy bills,
- Suppliers: a £40bn Energy Markets Financing Scheme established to address extraordinary liquidity requirements faced by energy firms from high and volatile energy prices
The aim is to see peak inflation reduced by about 5 percentage points.
On Thursday this week, with the announcement of a further 0.5% interest rate rise to 2.25%, the Bank’s Monetary Policy Committee (MPC) said it expected the UK economy would shrink by 0.1% in this third quarter of the year, after it contracted by 0.1% in the second quarter.
Having previously forecast that inflation would reach 13% in October, the MPC also said that the Government’s move to subsidise domestic bills through the Energy Price Guarantee meant inflation would now likely peak at just under 11%.
Digging through the announcement, the key headliners for our clients are summarised below:
- The additional rate of income tax will be abolished from 6 April 2023, so there will no longer be a 45% income tax band or 39.35% dividend tax rate band on income over £150,000
- The basic rate of income tax will reduce from 20% to 19% from 6 April 2023
- From 6 April 2023, the 1.25% increase in dividend tax rates which took place in April 2022 will be reversed, so dividend tax rates will return to 7.5% for income up to £50,270 and 32.5% on income over £50,270
- From April 2023, individuals with income over £150,000 will now benefit from a £500 Personal Savings Allowance
- The planned increase in corporation tax rates up to 25% from April 2023 has now been cancelled. The rate of corporation tax will remain at 19%.
- The Annual Investment Allowance (AIA) threshold, giving 100% tax relief on investment in plant and machinery, has now been permanently set (for as long as this Government stays in power) at £1m and will not reduce to £200,000 in April 2023 as originally planned
- Some of the rules relating to application of the super-deduction will be revised as a result of the corporation tax rate not increasing to 25% in April 2023
- Gift Aid relief at 20% will be maintained for a four-year transitional period to 5 April 2027, despite the reduction in the basic rate of income tax to 19%, in order to support charities
- The Government will reduce National Insurance rates from the 6 November 2022, in effect removing the temporary 1.25% increase for the remainder of the 2022-23 tax year. The 1.25% Health and Social Care Levy will not come into force as a separate tax from 6 April 2023 as previously planned.
- This tax cut reduces 920,000 business’s tax liabilities by £9,600 on average in 2023-24
- This is 60% of the UK’s businesses with employer NIC liabilities. It means 28 million people across the UK will keep an extra £330 a year, on average, in 2023-24.
Stamp Duty Land Tax (SDLT):
- To help people keep more of the money they earn, three measures are being introduced effective from midnight 23 September 2022:
- the amount from which you begin paying SDLT is doubling from £125,000 to £250,000
- the level at which first time buyers begin to pay SDLT will increase from £300,000 to £425,000
- first time buyers can access the relief when they buy a property costing less than £625,000 rather than the current £500,000
- Perhaps one of the biggest surprises was the proposal that the 2017 and 2021 reforms to off-payroll working rules will be repealed from 6 April 2023, meaning that workers providing their services through an intermediary company such as a personal service company, will take back responsibility for determining their employment status and paying the appropriate amounts of tax and NICs.
- It was also confirmed that the Government is in discussion with 38 local and mayoral combined authority areas in England, including Tees Valley, South Yorkshire and West of England to set up Investment Zones in specific sites within their area. Businesses in designated areas in investment zones will benefit from:
- 100% business rates relief on newly occupied and expanded premises
- full SDLT relief on land bought for commercial or residential development
- a zero rate for Employer National Insurance Contributions on new employee earnings up to £50,270 per year
- To incentivise investment there will be a 100% first year enhanced capital allowance relief for plant and machinery used within designated sites and accelerated Enhanced Structures and Buildings Allowance relief of 20% per year
- Each Investment Zone will offer liberalised planning rules to release more land for housing and commercial development
- These will be hubs for growth, encouraging investment in new shopping centres, restaurants, apartments and offices, and creating thriving new communities
There will be more detail issued over the coming weeks on a number of the main tax changes but the moment if you would like to read over the budget in more detail, this link takes you to the current issued detail: https://www.gov.uk/government/organisations/hm-treasury
Closing his speech, the Chancellor said “This [recovery] will not happen overnight but the tax cuts and reforms I’ve announced today – the biggest package in generations – send a clear signal that growth is our priority.”
As the Chancellor made his announcements, Sterling tumbled 1.6pc against the dollar to as low as $1.1077, the weakest since 1985 and threatening its lowest on record.
Let’s hope this jump start plan works.