Mini-Budget 2022 Summary
Chancellor Kwasi Kwarteng recently announced his mini-budget, which aims to drive UK economic growth, after taking on the position just three weeks ago.
With high inflation rates, increasing consumer prices and a fall in real wages, Kwarteng confirmed the tax cuts promised by PM Liz Truss would be enacted. Speaking in the House of Commons, the chancellor announced billions of pounds of increased spending and tax cuts, which will largely benefit the richest in society.
The main points in the budget are as follows:
- Corporation Tax – Rishi Sunak’s planned increase in corporation tax to 25% was cancelled, keeping it at 19%. The UK will have the lowest rate of corporation tax in the G20 and push around £19bn a year back into the economy.
- Annual Investment Allowance – Rather than returning to £200,000 in March 2023, the £1 million allowance is to remain permanent, giving 100% tax relief to businesses on their plant and machinery investments up to the £1 million limit.
- Income Tax – Sunak’s pledge to cut income tax by 1% has been brought forward to 2023. The basic rate of income tax will be cut to 19p and the 45p additional rate, paid by the richest in the country has been abolished.
- National Insurance – The 1.25 percentage point rise in NI contributions will be reversed from the 6th of November, falling from 13.25% to 12% on earnings between the primary threshold and upper earnings limit.
- Health and Social Care – The new mini-budget claims funding for the NHS and social care will be ‘maintained at the same level’ but with uncertainty from some MPs surrounding how. The health and social care levy announced for April 2023 has been scrapped.
- Stamp Duty – The £125,000 tax free threshold will double to £250,000. The threshold for first time buyers will be increased to £425,000, and the value of the property on which first time buyers can claim relief will be raised to £625,000 which is said to be a permanent change.
- Dividends – Investors will benefit from lower dividend tax after it was announced the 1.25% increase will be reversed. As of April 2023, the rate will revert to 7.5% for basic-rate taxpayers and 32.5% for higher-rate taxpayers. The annual dividend allowance will remain the same.
- Alcohol Duty – Planned increases in rates have been cancelled with the chancellor saying alcohol duty will freeze from next year. Additional measures have been promised such as an 18-month transitional measure for wine duty and a draught relief extension to cover smaller kegs of 20 litres and above to help smaller breweries.
- Pension Investments – The government will change regulations in order to increase investment by pension funds into UK assets.
- Bankers’ Bonus Cap – Unlimited bonuses for bankers will be allowed after the cap introduced after the 2008 financial crash is axed.
- IR35 – Kwarteng announced the government will scrap the 2017 and 2021 reforms to the IR35 off-payroll working rules which is said to be a victory for contractors after previous changes created havoc for independent workers.
- Investment Zones – The chancellor announced the creation of 38 investment zones across the UK. These areas will have lower taxation and liberalised planning laws.
In response to the tax cuts put forward in the mini-budget by Kwarteng, the Bank of England has warned that significant increases in interest rates will be implemented. This will have a huge impact on current mortgage rates and UK houseowners who may struggle to make payments. To achieve growth, the introduced measures must, and do, boost demand however there are concerns that interest rates will continue to rise in the long term to offset this.
Whilst tax cuts will hopefully provide some short term relief as people attempt to navigate the cost of living crisis, criticisms of the chancellor's mini-budget included the fact that it will do little to benefit Britain’s workforce and the take home pay of lower earners will see little increase.