The new Chancellor of the Exchequer, Kwasi Kwarteng, now known as Kami Kwasi, delivered his first major fiscal announcement to parliament on Friday 23 September. Billed as a mini budget in the press, what was actually introduced was ‘The Growth Plan’, a raft of sweeping cuts and changes to legislation.
The new measures have already been widely criticised – by both sides of the Houses of Parliament and by economic commentators across the political spectrum. Depending on your viewpoint, this was either a budget for driving growth, or a fiscal disaster that has almost exclusively ignored the cost-of-living crisis and the current UK recession.
A plan for growth, or a misjudged economic strategy?
The Chancellor’s ‘Fiscal Event’ is intended to slash taxes for bankers and the highest earners and set the country onto a path of sustained underlying economic growth of 2.5%. But in doing so, the Government has abandoned any redistributive ideas that may have tackled the cost-of-living crisis.
Over half of the personal tax cuts announced go to the wealthiest 5% of the population. In Wales there are only 9,000 people who pay tax at the 45% rate. Scotland sets it's own income tax rate, so this is really a mega tax cut for England. It ignores the soaring energy prices and inflation-led price increases that are constricting many medium and smaller businesses, and their consumers.
Because this wasn’t a formal budget, the Chancellor was not allowed a drink at the despatch box, but more importantly no independent analysis by the Office for Budget Responsibility (OBR) was legally required. Despite this, it’s usual for any Chancellor to back up their strategy with reference to forecasts from the OBR. Although the OBR had provided a draft report, the Chancellor has refused to publish it. The lack of any formal figures or forecasts has caused anxiety in The City and the value of sterling has tumbled on the forex markets.
What were the main announcements of the Mini Budget?
Here are the main measures that the Chancellor announced and how they’re likely to affect your business, your own personal wealth and the UK as a whole.
Main tax measures
Personal taxes slashed – the headline news has been the Chancellor's scrapping of the additional rate of 45% for income over £150,000. The higher rate band of 40%, which comes in at £37,700 of taxable income, is now the top rate of income tax in the UK – a move that’s been seen as a tax break for the richest 1%. The normal tax-free personal allowance is £12,570, so the higher rate kicks in at a total income of £50,270. The reduction in the basic rate from 20% to 19%, has also now been brought forward to April 2023.
National Insurance increases reversed – the National Insurance increase which came in from April 2022 will be reversed, starting with the November pay month. The employer rate drops to 13.8% from 15.05% on annual earnings above £9,100. For the self-employed, the Class 4 rate will stay at 9% from 2022/23 instead of increasing to 10.25% above the threshold of £11,909 (2022/23) and £12,570 (2023/24).
Dividend tax reverts to the previous rate – the rate of tax on dividends will revert to 7.5% (basic rate band) and 32.5% (higher-rate band) from 6 April 2023 – with the additional rate of 38.1% being scrapped.
Capital allowances frozen – the Annual Investment Allowance (value of qualifying fixed assets with 100% deduction in year of acquisition) is frozen at £1 million. This was planned to fall to £200,000 from April 2023.
Corporation tax increase scrapped – the planned increase in corporation tax (CT) planned for April 2023 has been cancelled. CT would have risen from 19% to 25% for companies earning £250K or more of profit, but this change has now been scrapped.
IR35 reforms repealed – the underlying rules regarding employment status are unchanged. But from 6 April 2023, workers that provide their services via an intermediary, such as a personal service company, will once again be responsible for determining their employment status. They’ll also be responsible for paying the appropriate amount of tax and National Insurance Contributions (NIC).
Other measures announced
Investment Zones to be introduced – ‘Investment Zones’ will be introduced across the country with tax and deregulation benefits for corporations. Very little detail has been published on what these zones will constitute, but the thinking is that this will be a continuation of the Johnson government’s Freeports concept, a deregulation strategy that has raised concerns among many unions, environmental and civil rights groups.
Energy cost savings – energy unit rates for domestic consumers will be capped so that the average user will be charged £2,500/annum from October 2022 for two years. The cap had previously been announced as £3,549 from October, with guesstimated further steep rises from April 2023 onwards. The scheme for non-domestic users effectively covers half the costs for six months, with longer-term support possibly being put in place thereafter. The Government expects the energy cap to reduce peak inflation by 5 points. Those using solid fuel or other off grid heating solutions will receive £100 towards the extra cost.
Bankers’ bonus cap removed – bankers’ bonuses had previously been capped at 100% of normal pay (200% with shareholder approval). The cap has been removed and bonuses are uncapped. This and other reforms are to be introduced in time for hedge fund managers to obtain bonuses for betting against GBP.
Alcohol duty rises scrapped – the planned duty rises on alcohol have been cancelled.
Stamp duty amended – from 23 September 2022, the first £250,000 of any property purchase has a 0% stamp duty rate. For first-time buyers, that’s £425,000 – provided that the total cost is not above £625,000. Those values are all up by £125,000 and only apply in England.
Changes to the law re industrial action – legislation will be tabled to require unions to put meaningful pay offers to a member ballot, before strike action can take place. Minimum service levels will also be mandatory during any transport strikes, a move that’s likely to antagonise many of the UK’s main transport unions.
Planning controls to be relaxed – planning regulations and restrictions are to be eased, particularly for infrastructure projects and in the previously mentioned Investment Zones. This could have implications for green belt land and many natural environments, something that Friends of the Earth have called ‘extremely worrying’ and has antagonised both the RSPB and Wildlife Trusts.
Benefit claimants could face cuts – claimants working up to 15 hours per week who can’t demonstrate that they are fulfilling job search commitments will face benefit cuts. Cutting benefits for those in the lowest socio-economic groups has been criticised and seems politically motivated as it is at odds with the Government’s aim of encouraging consumer spending.
Non Residents go VAT-free – VAT-free shopping will be introduced for non residents and tourists, to encourage UK tourism and make the UK a more attractive (and cost-effective) place to visit. However if you live here you still have to pay VAT on your shopping.
Talk to us about your concerns following the mini budget
This was a mini budget that did little to help small businesses, individuals, interest rates or the cost of living crises. Most of the measures are aimed at high earners and larger corporate organisations and, as such, are unlikely to ease the economic and supply chain pressures you’re already facing.
If you’d like to talk to us about any concerns or worries related to the main announcements, please do get in touch. We’ll be happy to explain more of the details and help you start planning a 2023 strategy to overcome your biggest business challenges.