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New chancellor Kwasi Kwarteng delivered his emergency mini-budget at the end of September. The measures are wide-reaching but have a particular focus on cutting taxes. The budget was delivered to a country facing soaring inflation, a looming recession, companies still devastated from Covid-19 closures and an energy price crisis.
Since the announcements, markets have floundered with the FTSE 100 hitting its lowest point since March. There has also been a run on the pound, and the budget has been criticised for only materially benefiting high-earners.
The chancellor and PM have set an annual target of 2.5% economic growth and are hoping the mini budget will prove that ‘trickle down economics’ will help to achieve this.
-Income Tax – The government has announced that the basic rate of income tax will be taxed at 19% rather than 20%, affecting those earning £12,571-£50,270. The additional rate tax of 45% will be completely cut, meaning top earners will pay a single top rate of income tax at 40%. The move has been criticised as part of wider concerns that the mini-budget benefits higher earners only.
-National Insurance – Kwarteng also announced the reversal to the recent rise in National Insurance Contributions. The previous budget, delivered by Rishi Sunak, had increased NICs by 1.25% for both employees and employers. The reversal is set to effect 28 million workers, with an average saving of £330 per year.
-Stamp Duty – First-time buyers are exempt from stamp duty for property up to £425,000 and other buyers are entitled to stamp duty exemption on properties up to £250,000, double the previous figure. Many have since noted this has been cancelled out by mortgage rate increases.
-Corporation Tax – The April 2021 budget had planned for a 19% to 25% increase in corporation tax, starting in 2023, which has been scrapped. The chancellor has urged businesses, who are set to save £19 billion by 2027 through the cancellation, to use this money for investment. The increase to 25% would have meant the UK would have a higher rate than in the EU, which recorded 22.2% in 2020. By keeping the 19% rate, the UK holds the lowest rate in the G20.
-The Annual Investment Allowance (AIA) – This had been due to end in March 2023, but is being continued, allowing businesses to invest between £200,000 and £1 million each business year in new plant and machinery without being taxed on these purchases.
-Low Tax Investment Zones – The chancellor announced plans for 12 investment zones comprising 38 councils across the country, benefitting from time-limited tax incentives and reduced planning restrictions. It is hoped the low tax investment zones will boost businesses and investment in areas such as the West Midlands, Tees Valley, Somerset and Norfolk.
-VAT for overseas shoppers – New rules will allow VAT-free shopping for overseas visitors, but there is little more detail on this, currently.
-Duty rates on alcohol – The chancellor announced that he was cancelling planned increases in duty rates for beer, wine, cider and spirits. Rishi Sunak’s 2021 budget had planned for higher duty for stronger alcohol, but the duty premium on sparkling wines and draught beer and cider served in pubs would be cut.
As part of the mini-budget, the chancellor effected changes to Universal Credit. Prior, those claiming the relief needed to work 9 hours per week at the national minimum wage; this week those claiming needed to work 12 hours per week, and, as of January, to receive Universal Credit, will need to clock 15 hours per week. However, those who are still eligible will receive a higher figure, in line with inflation.
One of the most pressing issues for the incoming government is the energy crisis.
Since the new government has taken office, there has been an energy price guarantee and proposal of an energy markets financing scheme. The policies together are set to cost the government £60 billion from October through to March, and will be funded largely through borrowing.
PM Truss had previously announced a price cap on gas and electricity bills, with an average cap of £2,500. The new cap came into effect on 1st October.
As part of the wider plan to generate a boom in the city, Kwasi Kwarteng announced an end to the rules limiting bankers’ bonuses. The chancellor has pre-empted further deregulatory measures to be confirmed in November.
The mini-budget marks a sharp change in the focus of the treasury. Three recent chancellors Philip Hammond, George Osbourne and Rishi Sunak all sought to bring in measures to promote fiscal sustainability; Kwasi Kwarteng has instead chosen to ‘boost the supply side’.
Talking points: How does ‘trickle down economics’ work? Do you think it is fair to reverse corporation tax for companies with annual profits of over £250,000 when many people are affected by the cost of living crisis? Do you think there are circumstances in which long-term economic benefits for wider society are a justification for offering immediate benefits to corporations and the wealthier members of society?
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