Mr Kwarteng has great expectations for the UK economy. What was in his Mini Budget?
The Chancellor has delivered his Mini Budget. He began by restating the significant measures the Government has taken regarding the energy cost crisis, recapping the Energy Price Guarantee for households and the Energy Bill Relief Scheme for businesses, charities and the public sector. In order to support energy businesses, he announced the Energy Markets Financing Scheme, which together with the Bank of England will provide 100% guarantees for commercial banks offering emergency liquidity to energy traders.
Recognising that high energy costs are not the only challenge confronting the UK, the Government clearly intends to focus on stimulating growth. It aims to reach a trend rate of growth of 2.5% by expanding the supply side of the economy through tax incentives and reform.
It is publishing a growth plan, built around three priorities.
- Reforming the supply side of economy
- Maintaining a responsible approach to public finance
- Cutting taxes to boost growth
The chancellor went on to outline the Government’s plans, and we expect a published document providing more detail shortly.
- Reform: Reforms are planned for the planning system (new Bill expected), business regulation, childcare, immigration, agricultural productivity and digital infrastructure. The Government believes that major infrastructure decisions are taken too slowly and plans to streamline and speed up the process. It has published a list of infrastructure priorities that will be accelerated.
- Unemployment: Unemployment is at its lowest level for 50 years. To encourage people to join the labour market, the unemployed must fulfil their job search commitments, taking active steps to seek work or face cuts to benefits.
- Strike action: To stop trade unions closing down critical infrastructure, legislation will be introduced to ensure strikes can only be called when negotiations have genuinely broken down, after pay offers have been put to a member vote.
- Capital investment: reforms to the Pension Charge Cap will be accelerated so that it will no longer apply to well- designed performance fees, unlocking unlock pension fund investment into UK assets and innovative high growth businesses, benefitting savers and increasing growth. The Gov will provide up to £500m to new innovative funds to support science and technology scale ups.
- Bankers Bonus cap: The Government believes that bonus cap did not cap total remuneration, so it is being scrapped. Mr Kwarteng also promised an ambitious package of regulatory reform to reaffirm London as the “world’s financial centre” later in the Autumn.
- New investment zones: New designated tax sites will benefit from liberalised planning rules, tax cuts and incentives to invest, build and create jobs in these zones. 40 sites are currently being discussed.
- Tax system: According to the Government, high taxes reduce incentives to work, deter investment and hinder enterprise. It is keen to point out that the interests of businesses are not separate from interests of individuals and families. As a result, Mr Kwarteng announced the following tax measures:
- The Corporation Tax rise, planned for next year is cancelled. It will remain at 19%.
- The Annual Investment Allowance will remain at £1 million rather than falling to £250k as planned.
- Enterprise Investment Scheme & Venture Capital Trust extended beyond 2025 and the limits on SEED Enterprise Investment Schemes and Company Share Options increased to make them more generous.
- Office for Tax Simplification is to wind down. Instead, all tax officials are mandated to simplify the tax regime.
- To simplify IR35 rules, the 2017 and 2021 reforms are to be repealed.
- VAT free shopping for overseas visitors will be introduced asap.
- Alcohol duties. An 18-month transitional measure for wine duty has been announced, draft relief has been extended to cover smaller kegs of 20L and above and the planned alcohol duty increases have been cancelled.
- Personal taxation. The Health & Social Care Levy has been cancelled, along with the increase in employer National Insurance Contributions, dividend tax and the interim increase in the National Insurance rate brought in for this year, with effect from November 6.
- The current Stamp Duty Land Tax threshold of £125K will be increased to £250K. The first-time buyer threshold will be increased from £300K to £425K for first time buyers, who will be able to claim relief on first time purchases up to £625K. These changes come into immediate effect.
- The additional rate of income tax will be abolished, leaving a single higher income tax rate of 40% – this measure was withdrawn on 3 October 2022. The additional rate of Income Tax will NOT be abolished.
- The basic rate of income tax will be cut to 19% from 1 April 2023, one year earlier than planned.
The Government expects this plan to deliver higher wages and greater opportunities. It expects it to fund public services and allow the UK to compete successfully in the global economy.
We will be delving into the details as they are released, to discover the substance behind their expectations.