In what has been described as a ‘fiscal event’ rather than a budget, the new Chancellor Kwasi Kwarteng has announced a series of measures to boost the economy and help households and businesses keep more of their money.
The measures total the biggest tax cut since 1972 as the Chancellor abolishes the top rate for high earners and cuts the basic rate of tax to 19p – a move which had already been muted by the government under Rishi Sunak but will now come in sooner.
Here, Beatons’ Head of Taxation Andrew Diver gives an overview of the key points.
The Chancellor’s 40 page ‘growth plan’ includes some radical steps which the government say will release the huge potential in the British economy and also tackle high energy costs and inflation, helping to increase productivity and wages.
Tax cuts
- The 45% higher rate of income tax is to be abolished.
- Basic rate of income tax to be cut to 19p in the pound from April 2023. This means an employee on average earnings would save approximately £170 per year.
- A planned 1.25% National Insurance rise is to be reversed from November 6 - saving money for businesses and 28 million workers.
Energy crisis support
The Chancellor reiterated the energy price guarantee – stating that the average household will pay no more than £2,500 per year for energy and will receive the £400 grant from October.
Households will see this grant in the form of £66 reduction in their energy bill each month.
Support for businesses
- The planned rise in corporation tax to 25% next year has been cancelled, a move which the Chancellor says will put £19billion a year into the economy.
- A tax cut for businesses in designated sites for 10 years to support investment, jobs and growth. The Government said it is communicating with 38 local and mayoral combined authority areas in England about "investment zones" with the hope of these growing across UK.
- New legislation will cut barriers and restrictions to building new roads, rail and energy infrastructure.
- Set to bring in regulations to increase investment by pension funds into UK assets, benefiting savers and boosting economic growth, and incentivising investment into Britain's science and tech companies.
- The Annual Investment Allowance will bring tax relief for businesses on plant and technology investment - to remain at £1m for the foreseeable future, rather than a planned return to £200,000 in March 2023.
Housing market help
Big cuts were announced for the housing industry, in a bid to keep this market buoyant and stamp duty to be slashed from today.
- Nothing will be paid for first £250,000 of property's value – this is double the current amount.
- The threshold for first-time buyers is to be increased from £300,000 to £425,000.
- Additionally, the value of the property which first-time buyers can claim relief is to rise from £500,000 to £625,000, meaning that first-time buyers will not have to pay any stamp duty on the first £425,000 of a property's price, provided that the property costs less than £625,000.
Andrew said: “This is a huge announcement, covering around 30 points with the idea of stimulating the economy on the whole.
“Some of the cuts are not totally new notions, but this Chancellor is bringing in previously suggested cuts much more quickly than had been anticipated.
The energy support package will be welcomed in households across the UK as will the cut in basic rate of tax for all earners up to £50,000.
The stamp duty cuts are significant and much higher than expected, which will help to keep the housing industry moving.
“The measures are a big statement of intent and will involve significant increases to public debt “
“Only time will tell if they are to have the positive effect on the economy that the Government expects to fund these cuts”
If you would like accountancy advice on any of the new measures and how they might affect you or your business, Beatons can help. Email info@beatons.co.uk or call 01473 659777.