Following Kwasi Kwarteng’s ‘growth’ plan, the UK economy did anything but. In a bid to calm the economy and markets down, he brought forward the budget and economic update to 31st October; however, he has since left the cabinet. The new Chancellor, Jeremy Hunt, has wasted no time since his appointment last week and has this morning announced a U-turn on almost all the tax measures introduced on 23rd September by his predecessor. As planned, a full economic statement will still be made at the end of the month, but this morning’s announcement reversed around £32bn worth of tax cuts previously suggested. Here’s a summary of the chancellor’s latest statement, and what has and hasn’t made the cut:
What changes have been scrapped
- Corporation tax – It was set to rise from 1st April 2023 to 25%, which was then reversed in Kwasi Kwarteng’s statement last month but is now still going ahead as planned and rising to 25% in April next year.
- Income tax – The basic income tax rate was set to reduce from 20% to 19% in April 2024, and Kwasi Kwarteng brought this forward to April 2023. It won’t go ahead and will remain at 20% but will be reviewed when the economy allows. Another of Kwarteng’s announcements that were reversed pretty quickly was the plan to remove the additional income tax rate (45%), which will continue to remain in place.
- Dividend tax – This was set to reduce in line with the National Insurance (NI) drop of 1.25%. However, it will remain at 8.75%, 33.75% and 39.35%.
- Energy cap support – This was going to be in place for two years. However, it has now been cut to just six months. With a view to making it more targeted to those who need it after that.
- VAT-free shopping for non-UK visitors and the freeze on alcohol duty will no longer proceed.
- IR35 rules – the government will no longer repeal the off-payroll working rules from April 2023.
What changes have been kept
- Stamp Duty Land Tax – In the chancellor’s latest statement, the reduction to the rate of stamp duty paid in England will remain in place, and the new rates are as follows: 0% – £0 – £250,000 (For first-time buyers, the nil rate band was increased to £425,000.), 5% – £250,000 – £925,000, 10% – £925,000 – £1,500,000 & 12% £1,500,000 +
- National Insurance – The removal of the health and social care levy and the increase to NI contributions by 1.25% will still be reversed next month as previously planned. Resulting in an immediate tax cut for many.
As part of the statement this morning, Hunt announced, “The objective is to design a new approach that will cost the taxpayer significantly less than planned whilst ensuring enough support for those in need”.
And it appears this won’t be the end of the cost-cutting measures, as he said: “more difficult decisions on both tax and spending” are due when he presents his fiscal statement at the end of this month.
He believes, “At a time when markets are rightly demanding commitments to sustainable public finances, it is not right to borrow to fund this tax cut.” And stressed that it’s the government’s responsibility to “do what is necessary for economic stability”. He added, “Governments cannot eliminate volatility in markets, but they can play their part, and we will do so because instability affects the prices of things in shops, the cost of mortgages and the values of pensions.”
So, what has been the reaction to the chancellor’s latest statement?
The pound has rallied to its highest level since September’s announcement and gained 1%. The FTSE 100 has also increased today following the announcement, and the yields on UK government bonds are decreasing, hopefully impacting mortgage rates and the cost of government borrowing.
Whilst the initial reaction to the chancellor’s latest statement seems positive and brought the government some breathing space, it seems like more developments and difficult decisions will continue.
We will update you as we discover more and will provide a comprehensive guide to the budget announcements later this month.
In the meantime, if you have any questions about your finances or how the budget changes affect your situation, please get in touch with one of our team.