The new Chancellor of the Exchequer Jeremy Hunt revealed yesterday Monday 17th October that he will be reversing ‘almost all’ of the tax cuts announced in his predecessor Kwasi Kwarteng’s mini-budget and is scaling back support for energy bills.
The changes Hunt revealed are as follows:
- No cuts to dividend tax rates
- Repeal of the easing of IR35 rules for the self-employed introduced in 2017 and 2021
- No new VAT-free shopping scheme for overseas visitors to the UK
- No freeze on alcohol duty rates
- Basic rate of income tax to remain at 20%, not reduce to 19% from April 2023
- Energy price guarantee only until April 2023
Kwasi Kwarteng has announced this morning that plans to scrap the highest rate of income tax will be reversed, following a major backlash.
In a statement posted online this morning, Kwarteng said the plan ‘had become a distraction’ and ‘we get it, and we have listened.’ The reversal comes in response to the furore and near-collapse of the pound caused by the controversial measures introduced in the government’s ‘Mini Budget’ of 23rd September 2022.
The new Chancellor of the Exchequer Kwasi Kwarteng has announced the so-called ‘Mini Budget’ this morning, 23rd September 2022.
Today’s fiscal event is confirmed as the biggest package of tax cuts since 1972.
With the pound at a 37-year low against the dollar and the Bank of England confirming that inflation rates have risen to 2.25% (the highest since 2008, before the financial crash), Prime Minister Liz Truss’ new government has been under much pressure to introduce measures that will combat inflation, the rising cost of living, and soaring energy bills.
Kwarteng reiterated yesterday’s welcome announcement that the government will reverse the 1.25% rise in National Insurance rates from 6th November.
The reversal will cover National Insurance Contributions (NICs) for both employers and employees. From April 2023, it will also apply to tax on dividends.
Key points to know:
- The planned Corporation Tax increase to 25% has been cancelled and will remain at 19%.
- The highest rate of income tax (45% for earnings over £150,000) is being abolished, and the basic rate will be cut to 19% from April 2023. This will be cut by 1p in the pound, one year earlier than planned.
- Stamp duty is being cut from today permanently. No stamp duty will be paid on the first £250,000 for a property, and for first-time buyers the threshold will be £425,000.
- Kwarteng reiterated that the energy price guarantee will limit bills for the average household to £2,500. For businesses, the government has introduced the energy bills relief scheme which will provide a price guarantee equivalent to the one for households.
- The government will legislate to remove planning restrictions ‘that constrain growth’.
- Benefit claimants working up to 15 hours a week must take new steps to increase their earnings or face having their benefits reduced in an effort to grow labour supply.
- Cap on bankers’ bonuses will be lifted so that pension funds can invest more easily in UK assets.
- Low-tax investment zones could be introduced in almost 40 areas. This will involve accelerated tax reliefs for structures and buildings and 100% tax relief on qualifying investments in plants and machinery, and on purchases of land and buildings for commercial or residential developments. There will be no stamp duty to pay on newly occupied business premises and no business rates to pay, so if a business hires a new employee in the tax site, the employee will pay no NI on the first £50,000 earned.
- The annual investment allowance will not be cut as planned and the Office of Tax Simplification will be abolished.
- The government will introduce VAT-free shopping for tourists.
- Planned increases in duty rates for beer, cider, wine, and spirits will be cancelled.
To conclude, this is a massive tax-cutting event for the economy and will naturally cost a lot of money.
The Treasury has deduced that the tax cuts will amount to a £45billion cut by 2026/27. On top of £60bn pledged for the cost of energy support measures.
Overall, the Chancellor has determined that people need additional help with bills and slashing tax is necessary to stimulate growth.
It remains to be seen whether this will be a success but, in the short-term at least, many of the above measures will be welcomed.
As always, if you would like any further information regarding the above, please feel free to contact us.