17th October 2022 - Update
There was much criticism of the mini-Budget announced last month as described below, and markets moved significantly as a result; causing emergency action from the Bank of England.
Jeremy Hunt has been appointed as the new Chancellor of the Exchequer to replace Kwasi Kwarteng, who has the dubious accolade of being the second-shortest serving Chancellor at just 38 days in office (the shortest was Macleod who passed away after 30 days in the post. Let's hope that we may now see stability after having now our fourth Chancellor in barely more than three months).
Jeremy's first act in his first full day as Chancellor, was to announce that most of the tax-cutting measures below are to be scrapped; except the cut to National Insurance and Stamp Duty. There will be a review of how the energy support scheme will operate from April 2023 onwards. The original version of this article now follows below.
The new Chancellor of the Exchequer, Kwasi Kwarteng, made his first fiscal statement this morning to outline his plans to inject some much-needed growth into the economy, amid a backdrop of high inflation and increasing interest rates. Here we summarise below the main points of his statement.
Taxes, Pensions and Benefits
The National Insurance increases introduced in April will be removed from 6 November 2022.
The Health and Social Care Levy due to commence next year has been abandoned.
The basic rate of income tax will be reduced from 20% to 19% from April 2023.
The 45% additional rate of income tax will be abolished from April 2023. (This measure was withdrawn on 3rd October following significant criticism).
These changes to income tax will not apply in Scotland.
The dividend tax increase of 1.25% will be reversed from April 2023. As the additional rate of income tax has been abolished, so to has the additional tax rate on dividends. So, dividend tax rates will be set at 7.5% for basic rate taxpayers and 32.5% for higher rate taxpayers.
The increase to Corporation tax next year has been cancelled and will therefore remain at 19%.
The Office of Tax Simplification will be abolished. HM Treasury and HMRC will be given a mandate to focus on simplifying the tax code.
The 2017 and 2021 reforms to the off-payroll working rules (IR35) will be repealed from 6 April 2023. This will be of particular interest to contractors working through their own limited company.
Draft legislation will be published to reform the charge cap on Defined Contribution pensions.
Stamp Duty
The Stamp Duty threshold will increase immediately from £125,000 to £250,000.
The threshold at which first-time buyers begin to pay Stamp Duty will increase immediately from £300,000 to £425,000. The maximum value of a property on which first-time buyer's relief can be claimed will also increase, from £500,000 to £625,000.
These changes apply in England and Northern Ireland only.
Excise duties
Planned increases in duty rates for beer, cider, wine and spirits will be cancelled.
Energy costs
The energy price guarantee will limit bills for two years for the ‘average’ household to £2500.
For businesses, the government has introduced the energy bills relief scheme. This will provide a price guarantee equivalent to the one for households.
Investment Zones
Investment Zones will be introduced across the UK following discussions with mayoral and local authorities in England and the devolved administrations in Scotland, Wales and Northern Ireland. Investment Zones will benefit from tax incentives, planning liberalisation and wider support for the local economy.
Budget
The Chancellor is expected to make a full Budget Statement including OBR forecasts before the end of the year.
Comment
With such huge tax cuts one could be forgiven for thinking there's an election looming. Clearly there are a lot of changes here, particularly on tax, with many of the planned increases now cancelled. No doubt this will be widely welcomed as households struggle with significant cost increases elsewhere.
Very little was announced on pensions but, as the previous Pensions Minister was replaced earlier this week after 5 years in the role, it's possible we could see some changes in the main Budget expected later in the year. Fingers crossed for some action on the Lifetime Allowance. We'll be keeping a close eye on this (but ignoring the usual media "predictions").
As always, we've got some work to do to understand the detail and consider the implications for our clients. We'll take into account the latest developments in our ongoing Forward Financial Planning. However if you have any immediate questions or concerns, please get in touch.
Best wishes,
Michael Roberts FPFS
Chartered Financial Planner and Director
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