Mini-Budget: a summary of the key points
Chancellor unveils his plan to kick-start UK economic growth
The new chancellor’s ‘mini-Budget’ confirmed dramatic cuts to income tax, national insurance, and corporation tax alongside expensive energy subsidies. The package includes £45bn of tax cuts, as the Government aims for an annual growth rate of 2.5 per cent.
Ahead of today’s announcement, the Chancellor of the Exchequer Kwasi Kwarteng said “Taxing our way to prosperity has never worked. To raise living standards for all, we need to be unapologetic about growing our economy.”
Top rate of income tax
In the biggest surprise, the Chancellor abolished the 45p top rate of income tax for those earning more than £150,000 from April 2023, replacing it with a single higher rate of 40p. This is likely to be controversial at a time when lower income households are struggling with the cost-of-living crisis.
The chancellor said he would also cut the basic rate of income tax by 1p in the pound to 19 per cent in April 2023 — a year earlier than the government had previously promised.
We await news on how devolved Governments in Wales and Scotland respond to these announcements.
April’s 1.25 percentage point NI increase reversed
Widely trailed, the Chancellor scrapped the 1.25 percentage point rise in national insurance (NI) contributions that was introduced in April. The change will take effect on 6 November.
The Treasury claims this will mean 28 million people will keep an extra £330 on average next year and 920,000 businesses will save almost £10,000 next year.
The health and social care levy, which was to replace the 1.25 percentage point rise to NI in April 2023, has also been scrapped. The Chancellor has confirmed funding for health and social care services will be protected but funded from general taxation.
Dividend tax
The 1.25 percentage point increase to income tax on dividends will be reversed from April 2023.
Corporation tax
Corporation tax rates will stay at 19 per cent, rather than rising to 25 per cent from April 2023. He will maintain the 8 per cent charge on bank profits.
Stamp Duty cut
No stamp duty will be paid on the first £250,000 of a property, up from £125,000. For first-time buyers the threshold will increase from £300,000 to £425,000 for homes worth up to £625,000. The surcharge for second homes will remain.
He says “These permanent measures, effective from today are expected to take more than 200,000 buyers out of paying for stamp duty altogether.”
Venture capital schemes extended
Venture capital trusts, enterprise investment schemes and seed enterprise investment schemes will be safeguarded beyond 2025. This will allow businesses to secure equity investment for growth, with associated tax reliefs for investors.
Energy bills
Energy bills for households have been capped at an average of £2,500 a year for two years, a £1,000 saving at current energy prices. Households will receive a £400 contribution against winter bills and the most vulnerable will receive additional payments.
Bills have also been capped for six months for businesses, charities, and public sector organisations such as schools and hospitals from October.
The chancellor confirmed that the energy rescue scheme for households and businesses was expected to cost £60bn for the first six months from October
Other measures
As part of the chancellor’s pledge to simplify taxes for individuals, he will repeal some of the recent changes in IR35 off-payroll working rules.
Planned increases in duty rates for beer, cider, wine, and spirits will all be cancelled.
The Office of Tax Simplification will be abolished, with all officials focusing on tax simplification.
VAT-free shopping will be introduced for tourists.
The annual investment allowance will remain at £1 million permanently, supporting capital investment.
Taxes will be cut for businesses in designated ‘Investment Zones’ for 10 years. There will be accelerated tax reliefs for structures and buildings and 100% tax relief on qualifying investments in plant and machinery, on purchases of land and buildings for commercial or new residential developments.
Katharine Lindley, Head of Advice
EQ Investors