Overview Of The Mini Budget

On Friday 23rd September, Chancellor Kwasi Kwarteng MP, shared the Conservative Government’s mini budget plans in the House of Commons, stating:

People need to know help is coming and it is indeed coming

Chancellor Kwasi Kwarteng MP

You will find a summary below of the key points raised in the mini budget, including the topics of NI, tax, energy prices and stamp duty.

Energy Prices

The Chancellor outlined the Government’s energy price guarantee which limits the unit price of gas and electric for 2 years, capping the annual average household bills at £2,500. The Government is continuing with the existing plans of a £400 rebate to each household this winter, with millions of the most vulnerable households receiving additional payments, and potential savings of £2,200 this year.

The Government’s energy plan will reduce peak inflation by 5%, which will lower the wider cost of living expenses and help businesses and the British people with the cost of energy.

Economic Growth

The Chancellor says Great Britain “needs a new approach for a new era” to reach 2.5% growth.

Outlining the Government’s new mini-budget growth plan, he set out a new approach for growth centred around 3 central policies:

  1. Supply side reform
  2. Maintaining a sensible approach to public finances
  3. Cutting taxes to encourage growth

The Chancellor endorsed the Government’s use of borrowing powers to fund temporary measures to support families and businesses, adding that “the heavy price of inaction would have been far greater than the cost of these schemes.”

The Chancellor continued to state that there are too many barriers for enterprise, and that we need to approach this by reforming the economy.

To drive growth, The Chancellor explained we need new sources of capital investment and as such, pledged to accelerate reforms for the pension charge cap which will unlock pension fund investments into UK assets and high growth businesses.

This will benefit savers and provide up to £500m in innovative funds and attract billions of additional pounds into the UK science and technology scaleups.

National Insurance

The planned increase in employer national insurance contributions and dividends tax will be cancelled and the interim increase of the national insurance rate brought in for this tax year will also be cancelled.

This cut will take place from the earliest possible moment of 6th November 2022 reversing the levy of a tax cut for twenty-eight million people worth on average £330 every year.

A tax cut for nearly one million businesses and the additional funding for the NHS and social care services will be maintained at the same level.

Tax

Mr. Kwarteng went on to say that “tax determines the incentives across our whole economy, we believe high taxes reduces the incentive to work, they deter investments, and they hinder enterprise.”

As such, he announced several Government taxes cuts:

  • Cutting taxes for businesses in designated sites for 10 years
  • Accelerated tax reliefs for structures and buildings
  • 100% tax relief on qualifying investments in plants and machinery resulting in the annual investment allowance to remain at £1m rather than the predicted decrease to £200k.
  • The scrapping of stamp duty on newly occupied business premises.
  • If a business hires a new employee, for the first £50k they earn, the employer will pay no national insurance whatsoever.
  • The Chancellor announced that the planned increase to corporation tax will be cancelled and will remain at 19% instead of increasing to 25%. This will result in Great Britain having the lowest corporation tax in the G20 and will plough almost £19bn back into the economy which is for business to “reinvest, raise wages or pay dividends that supports our pensions”.
  • Additionally, it was announced the bank surcharge will remain at 8%.

Changes to the Tax System

For the tax system to favour growth, it needs to be much simpler, and the Chancellor announced his plan to embed tax simplification into the heart of the Government, rather than having it separate to the Treasury and HMRC. This will be achieved by mandating all of his tax officials to focus on simplifying taxes to achieve a simpler system.

The plan to do this is by automatically sunsetting EU regulations by December 2023, requiring departments to review, replace, or repeal retained EU laws. The Chancellor said that this “will improve growth and restore the primacy of UK legislation.”

The UK welcomes millions of tourists each year and in order for our high streets, airports, and shopping centres to feel the economic benefit, an introduction of VAT free shopping for overseas visitors was announced.

The Government’s drive to modernise also extends to alcohol duties with an introduction of an 18-month measure for wine duty and a draught relief on smaller kegs to support smaller breweries. The planned alcohol tax increase has been cancelled.

Income Tax

Mr. Kwarteng said high tax rates damage Britain’s competitiveness, they reduce the incentive to work, invest and start a business.

He continued, “The higher the tax, the more ways people seek to avoid them, work elsewhere or simply work less.”

The Chancellor announced the 45% top rate of income tax will be abolished and replaced with a top rate of 40% which will simplify the tax system and make Britain more competitive. This will reward enterprise and incentivise growth. However, as of the 3rd October 2022, there has been a U-turn on the top rate of income tax cut.

Furthermore, it was announced the cut in the basic rate of income tax from 20% to 19% in April 2023 resulting in a tax cut for over thirty-one million people.

Stamp Duty

Home ownership is the most common route for people to own an asset, giving them a stake in the success of the economy and society. It was announced that to support growth and to support families inspiring to own their own home, stamp duty will be cut effective from today and is permanent:

  • Buyers will now not pay stamp duty on the first £250k of the property value, doubling from £125k.
  • First time buyers will pay no stamp duty on the first £425k increasing from £300k.
  • The value of property first time buyers can claim relief on is increasing to £625k from £500k.These measures mean around two hundred thousand more people will be taken out of paying stamp duty altogether.

Source: HMRC, updated Monday 3rd October 2022.

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