Kwasi Kwarteng, the new Chancellor of the Exchequer, has delivered a mini Budget, dubbed The Growth Plan, in which he promises “a new approach for a new era.”
The Chancellor has put tax cuts and driving economic growth at the front and centre of his fiscal plan, as the government seeks to get to grips with soaring inflation and rising interest rates.
So what exactly did he announce? Let’s take a closer look at the details.
A cut in income tax
The basic rate of income tax will be cut to 19% in April 2023 – a year earlier than had originally been planned. The government says this means 31 million people will get, on average, £170 more per year in their pay packets.
Top rate of tax for higher earners abolished
The highest rate of income tax currently stands at 45% and is paid by anyone earning more than £150,000 a year. From April 2023, a single higher rate of income tax of 40% will be introduced.
According to Mr Kwarteng, this will simplify the tax system, make Britain more competitive, incentivise growth and reward enterprise and work.
Reversing the National Insurance increase
The government’s planned 1.25% National Insurance rise will be reversed on November 6th. This means almost 28 million people will keep an extra £330 of their money on average next year, while 920,000 businesses will save nearly £10,000 on average next year.
The Health and Social Care Levy, which was meant to be partly funded by the increase in National Insurance, will be cancelled, although the government has confirmed funding for health and social care services will be protected.
Corporation tax rise cancelled
Corporation tax had been set to go up from 19% to 25% next year, but this planned increase will no longer go ahead.
Tighter rules on universal credit
Universal Credit claimants who earn less than the equivalent of 15 hours a week at the National Living Wage will have to regularly meet with their work coach and actively take steps to increase their earnings, or risk having their benefits cut. The government believes this will bring a further 120,000 people into the more intensive work search regime.
Stamp duty cut
The government has cut its stamp duty tax in England and Northern Ireland. The threshold of how much a property has to cost before a person pays stamp duty now stands at £250,000, while the threshold for first-time buyers has gone up from £300,000 to £425,000. Mr Kwarteng says the measures take 200,000 more people “out of paying stamp duty altogether”.
Removing caps on bankers’ bonuses
The cap on bonuses that bankers can receive on top of their salaries has been scrapped. This was introduced by the European Union in the wake of the global financial crisis, and meant bankers’ bonuses could not be higher than twice their annual salary.
Increase in dividend tax rates to be reversed
The 1.25% increase in dividend tax rates is to be reversed from April 6th, which will benefit 2.6 million dividend taxpayers with average savings of £345 in 2023-24. Additional rate taxpayers will also benefit from the scrapping of the additional rate of dividend tax.
Planned increases in the duty rates for beer, cider, wine and spirits have been cancelled, and VAT-free shopping for overseas visitors will be introduced.
The government has already announced that typical household energy bills will be capped at £2,500 annually until 2024. The Chancellor has now confirmed that the total cost of this energy package is likely to be around £60 billion for the six months from October.
A separate package of support for businesses was also announced prior to the mini Budget, which means energy bills for UK businesses will be cut by around half their expected level this winter, with wholesale gas and electricity prices for firms being fixed for six months from October 1st.