With the backdrop of sterling falling to a 37 year low, consumer confidence at new depths and a cost of living crisis, the Government has this morning laid out it’s new fiscal policies. The Chancellor, Kwasi Kwarteng, and the new Prime Minister have stated that they are focused on stimulating growth and today’s announcements reflect that intention.
Inevitably, there were initial statements on energy markets, the impact of increased prices for households and inflation. Whilst there was some comfort to be found on energy costs, there was little else to be said on how fiscal policy might impact inflation, with the Government choosing seemingly to pass the burden on to the Bank of England to manage this through interest rates.
In the words of the new Chancellor “…tax, central to solving the riddle for growth” was at the forefront of today’s policy announcements.
- National Insurance – the 1.25% planned rise in National Insurance, which was announced by Rishi Sunak in April, will be reversed from 6 November. Class 1 National Insurance rates paid by employees (12% on earnings between the primary threshold and upper earnings limit and 2% on earnings above the upper earnings limit) and employers (13.8%) will remain, whilst self-employed Class 4 National Insurance rates will also stay the same at 9% on earnings between the lower profits limit and the upper profits limit and 2% for earnings above the upper profits limit.
- Health and social care levy – the proposed introduction of the health and social care levy, which was due to come into effect from April 2023 at a rate of 1.25%, has been cancelled.
- Additional Rate Abolished – the highest rate of income tax, the additional rate which is currently 45% on income over £150,000 has been abolished. From April 2023 there will be a single higher rate of income tax of 40%.
- Dividend Rate – the Government is reversing the 1.25% increase in dividend tax rates. The ordinary and upper dividend tax rates will return to the 2021/22 levels of 7.5% and 32.5% respectively.
- Stamp Duty Land Tax (SDLT) – the new Government has built on the previous SDLT holiday, which saw large spikes in housing demands and the biggest increase in house prices in 19 years, by increasing the threshold above which SDLT has to be paid, from £125,000 to £250,000. The threshold at which first time buyers will begin to pay SDLT will increase from £300,000 to £425,000 and the maximum value of a property on which first-time buyers relief can be claimed will also increase, from £500,000 to £625,000. These changes will be effective immediately.
- Basic Rate – the basic rate of income tax will be cut, from 20% to 19%.
- Corporation Tax freeze – much of the Prime Minister’s election campaign promised a reversal of the planned increase in corporation tax, from 19% to potentially 25% from April 2023, and so it is came as no surprise for this to be a main feature of the first fiscal policy announcements.
- Bankers’ Bonuses – the cap on bankers’ bonuses has been lifted.
- The Office of Tax Simplification – it was announced that the Office of Tax Simplification will be closed and this will take effect when the next Finance Bill receives Royal Assent.
It was surprising to hear that the new measures announced today will allegedly achieve the Governments aims of delivering it’s growth plan without being able to evidence it’s impact, or even being willing to publish the Office of Budget Responsibility’s forecasts.
Edwin Coe’s Head of Tax, Sean Bannister, had the following thoughts:
“It is clear that there are significant tax positives for individuals, companies and those looking to purchase property as a result of today’s announcements. The recognition that the Office of Tax Simplification has struggled to achieve its aims and will be shut down, seems a tacit acknowledgment that the UK tax system remains incredibly complex and its reform continues to be an issue. We are concerned that the Chancellor seems to want HMRC, rather than an independent body, to push simplification forward and that, in our view, is unlikely to be effective.”
The changes today are significant and represent a very real benefit for those in the higher earning brackets and investors. The impact on economic growth seems less clear than the bullish statements made by the Chancellor. Only time will tell…
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