New Chancellor Reverses Most of Mini Budget
Published / Last Updated on 17/10/2022
The newly appointed Chancellor, Jeremy Hunt has today unravelled much of Kwasi Kwarteng/Liz Truss’s disastrous Mini Budget.
Markets had already reacted badly with proposed tax cuts to stimulate growth but not clear plan for how this was being funded. The pound virtually collapsed, and the Bank of England had independently to intervene by buying back UK Gilts (UK debt stock) with capital values falling and the cost of UK government borrowing escalating. In short, investors around the world had no confidence in Kwarteng/Truss’s ability to manage the UK economically and repay its debts.
Truss has since sacked Kwarteng and now replaced by Hunt. An experienced, steady hand many will say. Mr Hunt’s first actions as Chancellor today were:
- The basic rate of income tax will remain at 20% and not be dropped to 19% as per the mini budget.
- The energy support scheme that was to last for 24 months has now been cutback to end in April 2023. We assume a plan B will be in place by then.
- The 1.25% increase across all bands for taxation of dividends as part of the NHS and Social Care funding scheme will remain.
- The 1.25% reduction in national insurance contributions for employers to cover NHS and Social Care additional funding will remain i.e., the 1.25% increase was introduced in April 2022 is confirmed as being withdrawn. As is the Health and Social Care levy starting in April 2023 scrapped.
- New rules on IR35 reporting and compliance i.e., ensuring that a self-employed contractor does not qualify as an employee are to remain, but it will now only be the business’s responsibility to ensure that a self-employed contractor is not really an employee.
- The proposed freeze on alcohol duty from February 2023 for a year has been scrapped. We will pay more for our tipples.
- The proposed VAT shopping scheme for non-UK nationals visiting the UK is scrapped.
- The increases to corporation tax from 19% (up to £50,000 profit) to 25% (over £250,000 profit) and the sliding scale for profits between those levels is to still come into force and not be withdrawn as proposed in the mini-Kwarteng.
It is estimated that Kwarteng’s original proposals would have cost £77bn (reduced taxes £32bn and additional borrowing £45bn) but the above changes will reduce the ‘black hole’ to £32bn meaning more is to come in the main Autumn Budget on Monday 31 October 2022.
Whilst the above may initially calm markets, we cannot see trust being recovered with Truss coming under increasing pressure and no doubt the Autumn Budget will carry some fireworks given inflation likely to be over 10% tomorrow and this the rate that State Pension and benefits increases are usually set to increase in April 2023.