Chancellor Kwasi Kwarteng has announced a mini-budget in parliament this morning, outlining the latest fiscal and monetary policies and steps the government are taking to protect the people of the United Kingdom.
The public have been eagerly awaiting today’s announcements. As the Bank of England announce increased interest rates and inflation soars, what are Liz Truss’ government doing to support the country?
National insurance rise reversed
In April, ex-Chancellor Rishi Sunak announced a rise to National Insurance payments by 1.25%. This rise has now been scrapped.
This rise was originally implemented to pay for a health and social care levy. This funding will now come from general taxation.
This cut will save around 28 million people around £330 per year. For those on a wage of £20,000 per annum, the savings will total around £1.79 per week. However, those on a salary of £100,000 per annum will benefit from an extra £21 per week.
It will also see 920,000 firms saving £10,000 per year.
This reversal will come into play on November 6th, with many workers seeing the effects in their November pay packet.
Basic rate income tax cut
Kwarteng began his announcements with the mention of tax reform. He suggested the government intend to use tax incentives and reform to expand the supply side of the economy.
One of the ways in which this is being put into motion is through a basic rate of income tax cut. The basic rate of income tax has been cup by 1p to 19p, from April 2023. This is one year earlier than previously suggested. This will cut tax for 31 million people across the country, allowing an approximate £170 extra per year.
The highest rate of income tax is currently 45%, which will be cut to 40% for those earning over £150,000 annually. The Chancellor suggested this would simplify the tax system and “Make Britain more competitive”.
The Chancellor also suggested this would increase wages and provide greater opportunities, as well as rewarding enterprise and work, incentivise growth and benefit the whole economy.
Cap on bankers’ bonuses lifted
The Chancellor has made the move to scrap rules which cap the bonuses bankers can earn. The cap was first introduced within the EU in 2014 following the global financial crisis. Currently, a bankers’ bonus cannot be more than double their annual salary.
Mr Kwarteng has suggested this move will make the UK more attractive to the US and Asia, by pushing down banks’ fixed costs and encouraging investment.
Alcohol duty axed
It has also been announced that duty rates on wine, beer, cider, and spirits have been axed. This will be an 18-month transitional measure. All planned duty increases will also be cancelled.
Cuts to Stamp Duty
England and Northern Ireland will see a cut to Stamp Duty tax. Stamp Duty is paid paid when you buy a property.
The cut will raise the threshold on how much a property can cost before stamp duty is paid. This will double from £125,000 to £250,000. For first time buyers, the current rate at which you pay no stamp duty is £300,000. This will be increased to £425,000.
“And we’re going to increase the value of the property on which first-time buyers can claim relief, from £500,000 to £625,000,” the Chancellor said. This is effective from today, and will be permanent. This will mean around 200,000 people will pay no stamp duty at all.
Although not part of the mini-budget, the Chancellor praised Prime Minister Liz Truss for capping energy bills at £2,500, just two days into her new role.
The energy bill relief scheme will reduce energy costs for all UK businesses and charities.
This intervention by the government is likely to cost £60 billion in the six months from October 1st.
Corporation tax rise scrapped
Another tax cut confirmed by the Chancellor is the scrapping of a planned increase in Corporation tax. This is the amount of tax companies pay on their profits.
The planned increase was 6%, from 19% to 25%. This has been removed in its entirety. Those who supports the cutting of corporation tax suggest it attracts many companies to the UK as well as encouraging investment. This would result in more money being paid to the government through taxation.
However, it may not always result in increased taxes being paid to the government.
40 new so-called ‘investment zones’ have been announced across the UK. These zones will pop up in different areas across the country, and will have relaxed planning rules and reduced business taxes. This is to encourage investment in these areas.
Tourists entering the UK will be able to claim VAT back on purchases made. This is to encourage expenditure from tourists.
Another announcement was made regarding Universal Credit. Rules around UC will be tightened, with benefits being reduced if people do not fulfil job search commitments. Those over 50 will be given extra time with work coaches to do this, however.
Approximately 120,000 more people on UC will be asked to take steps to seek work and get back into the job market.