Mini Budget: huge tax cuts and seismic policy shift

Nothing about the fiscal statement delivered by the new Chancellor Kwasi Kwarteng was business as usual. This was published on 23 September 2022.

*For the latest information please see our mini budget summary

Over the last 12 years of Conservative governments there have been various approaches. Initially there was the prudent approach of George Osborne who set up the Office for Budget Responsibility (OBR), focussed on reducing the deficit, with tax changes announced in advance to avoid surprising businesses. Then there was the quiet period of Philip Hammond’s time in office that was hamstrung by Brexit negotiations. This was followed by the Covid-dominated time of Rishi Sunak who increased spending to save the economy but raised taxes to pay for it.

This was a handbrake turn in economic policy: cut taxes, reduce regulation and increase spending to deal with the cost-of-living crisis. The theory is this will stimulate the economy and break the cycle of stagnant growth to achieve a long-term growth rate of 2.5% which, in turn, will increase the overall tax take to pay for the spending. We will have to wait for the OBR’s assessment later this year as it was blocked from publishing its forecasts alongside the Chancellor’s statement.

In a whirlwind 30 minutes, there were several major new announcements that had not been leaked or predicted, alongside the tax policies that featured in Liz Truss’s leadership campaign.

Personal tax cuts

On 22 September 2022, the National Insurance Contributions rise of 1.25% was scrapped with effect from 6 November.

In Kwarteng’s announcement, the basic rate of income tax reduction to 19% has been brought forward to April 2023. Also, the dividend tax rate increase which mirrored the national insurance increase will be reversed from April 2023.

For house buyers, the Stamp Duty Land Tax (SDLT) nil rate band thresholds have been extended – doubling to £250,000 and increasing to £425,000 for first time buyers, and the maximum value of property for which first time buyers can claim relief is now at £625,000.

Always a popular policy, alcohol duties have been frozen for a year from February 2023, alongside some minor reforms.

Business tax cuts

The 1 April 2023 corporation tax rate increase to 25% has been cancelled, as widely predicted. The rate will remain at 19%.

It wouldn’t be a fiscal event without an announcement on the annual investment allowance which gives full relief for investment into plant and machinery. This has now been permanently set at £1m, dropping the planned reduction to £200k.

To encourage tourism, overseas visitors will be able to benefit for VAT-free shopping.

Tax reforms

Alongside rate cuts and freezes, wide ranging reform was announced.

The most surprising of these measures was the repealing of the 2017 and 2021 legislation in relation to the ‘IR35’ off-payroll working rules. These affect how off-payroll workers are taxed where workers are engaged via intermediaries (typically personal service companies). This legislation put the onus on businesses who hired workers caught under this legislation to determine their tax status as employed or self-employed, due to widespread perceived non-compliance. It will now be up to the worker to determine this once again. Whilst the IR35 rules of who is an employee have not changed, this is expected to cost the Exchequer  £1.1bn in 2023/24, rising to £2bn in 2026/27.

To encourage investment and entrepreneurship, the EIS and VCT schemes which provide tax relief for investment in small growth companies will continue beyond their predicted shelf-life and the limits SEIS for seed investment into start up companies will be extended to help another 2,000 companies a year. Company share option schemes for employees will also become more generous.

The future: Simplification? But without the office of tax simplification!

Kwarteng emphasised that the UK is on the path to being a low tax country with simpler legislation. A major simplification is the removal of the off-payroll working rules; in addition, all tax officials have been mandated to focus on simplification with the Office of Tax Simplification being abolished. The Government is committed to ‘fiscal responsibility and reducing the debt to GDP ratio over the medium term, with an update on its medium-term fiscal plan to be available at the next fiscal event, the Autumn Budget.

Also announced was the idea of ‘Investment Zones’ – designated areas with generous (but time-limited) tax cuts to encourage investment and create jobs. The tax cuts include 100% business rate relief, enhanced capital allowances, higher employer’s national insurance thresholds and no SDLT. Thirty-eight areas have expressed an interest in becoming designated investment zones. It remains to be seen how having a two-tiered business tax system will contribute towards simplification.

In summary, this was a blockbuster budget with major announcements for most of the main taxes – the only taxes that didn’t get a mention were capital gains tax and inheritance tax. Only time will tell whether these policies will have the desired effect.

Find out more

Our experts will be holding a panel discussion on the measures announced in the mini budget, and our Chief Economist, George Lagarias, will join us to discuss the impact of such policies in the global economic landscape.

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