With the new Conservative government still in its infancy, New Chancellor Kwasi Kwarteng was expected to put forward a ‘mini budget’ today. However, the set of measures announced turned out to be anything but mini. This budget saw the announcement of the biggest set of tax-cutting measures since 1972 in an attempt to deal with a stagnating economy and numerous crises. The government claim that this is the only way to boost economic growth. This budget represents a sharp turn from the last Conservative government by switching to a low-tax economy funded by high levels of government borrowing.
Critics, including the Labour Party and many other leading economists, have questioned the effectiveness of the plans, describing them as an example of ‘trickle-down economics’ and a return to the Thatcherism of the 1980s.
Let’s digest some of the key announcements and take a look at what they will mean for businesses and the public at large.
Tax
Tax cuts formed the vast majority of the announcements made in today’s budget. Under the previous government, Chancellor Rishi Sunak announced that the basic rate of income tax would be cut by 1p to 19p from 2024. This has now been brought forward to April 2023.
Perhaps the most surprising measure for a government to announce amidst a cost-of-living crisis was that the additional tax rate of 45p for those earning over £150,000 would be scrapped from April next year. According to the Treasury, this will save the 600,000 highest earning people in the country an average of £10,000 a year in tax.
The planned rise of corporation from 19% to 25% has also been scrapped, a measure which will ensure the UK continues to have the lowest corporation tax rate in the G7.
Meanwhile, the planned 1.25% rise to National Insurance will also be reversed from 6th November. This will save those earning £20,000 a total of £93 per annum, while those earning £100,000 per annum will save £1,093 per annum.
While these measures will all disproportionately benefit the wealthiest people in society, the government claim that this part of its plan is to boost growth and prosperity in the UK. Whether this example of ‘trickle-down economics’ will in fact have the desired effect remains to be seen.
Property
There were also a number of changes to the property sector announced, which will be of interest to conveyancers and property buyers alike.
Changes to stamp duty land tax (SDLT) are at the heart of the announcements, with the level at which house-buyers begin to pay stamp duty doubling from £125,000 to £250,000. This will save those who buy a house worth £250,000 a total of £2,500.
Meanwhile, first-time buyers will pay no stamp duty on homes worth £450,000, which is an increase from the previous threshold of £300,000. This will allow them to save £6,250.
Some within the conveyancing sector still recovering from the last cut to SDLT fear that this latest cut to SDLT will overheat the housing market and increase prices and mortgages.
Energy bills
Household bills will be cut by an average of £1,000 this year due to the energy price guarantee of £2,500, which will last for a two year period. This plan applies to those in England, Wales and Scotland.
Meanwhile, the six month £400 fuel bill discount will continue to go ahead alongside the newly announced additional support.
Businesses will also rejoice at the news that they will receive government support, with wholesale energy prices to be capped from 1st October at 21.1p per kilowatt hours for electricity and 7.5p per kilowatt hour for gas.
This support package will cost approximately £60bn for the six months from October, which will be paid for by increased borrowing.
Other measures
The government made a number of further announcements in its budget today, some more controversial than others.
One that grabbed a lot of headlines was the plan to axe the cap on bankers’ bonuses, which was introduced by the European Union in the aftermath of the financial crisis in 2014. This forms part of a deregulation drive in the City of London in an attempt to make the City more competitive than it has been in recent years, to the benefit of cities like Paris, Frankfurt and New York.
With industrial action affecting several sectors over the summer, the government will introduce legislation requiring unions to put offers to their members during pay talks, meaning that any pay offers for employers would have to be put to a vote. Meanwhile, transport companies will also be forced to provide a minimum level of service during industrial action – something not welcomed by trade unions.
Our thoughts
The scale of the measures announced by the Chancellor today far outweighs any prior expectations. The UK is currently facing a huge cost of living crisis, driven by, but not solely due to the war in Ukraine, the after-effects of Covid, and Brexit. While the government claim that these measures will help to drive much-needed growth, they failed to provide an OBR forecast, something which usually accompanies a government budget announcement. The value of the pound also plummeted following the announcements, suggesting the markets don’t have much confidence in the measures proposed.
Whether this redistribution of wealth towards the wealthier people in society will help to boost the economy, it’s hard to argue with the fact that the optics of such measures during a cost-of-living crisis may not necessarily be as positive for the government as they would like. Nevertheless, the recently announced support for businesses and households alike to help with the huge increase in energy bills will be much welcomed across the UK.
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