Our most recent Chancellor, Jeremy Hunt, announced yesterday material changes to the UK Government’s fiscal policy following substantial pressure from the markets. He has reversed most of the pledges from, what is now widely felt to be, the disastrous ‘mini budget’ of his predecessor, Kwasi Kwarteng. The initial policy announcement was made in an address to the public, which was followed by a statement to MPs later in the day.
Yesterday’s statement suggests that we now have a government whose principal concern is no longer growth stimulation aided by ‘tax cuts’, but one driven by a pragmatic desire to re-assure markets that the UK is a financially prudent country that is able to repay its long term debt commitments. Whether or not the ‘mini budget’ of just a few short weeks ago would have been a stimulus for growth is not entirely clear, but the negative response from the markets to the announcement suggests that there was little faith in the PM and Chancellor’s ideas within the financial community.
We have prepared a short summary of the current position below:
- National Insurance – one of the only policies to survive from former Chancellor Kwasi Kwarteng’s ‘mini budget’ is the reversal of his predecessor Rishi Sunak’s planned 1.25% rise in National Insurance.
- Health and Social Care Levy – in line with the unchanged National Insurance policy, the cancellation of the proposed introduction of the health and social care levy is to remain.
- Basic Rate – the proposed cut to the basic rate of income tax from 20% to 19% has been “put on hold indefinitely until economic circumstances allow”.
- Additional Rate – the Government had already announced its U-turn on their proposed abolition of the 45% additional rate tax on income over £150,000.
- Dividend Rate – the current rates will be retained.
- Stamp Duty Land Tax (SDLT) – the threshold at which buyers will begin to pay SDLT will rise from £125,000 to £250,000, whilst the threshold at which first time buyers will begin to pay SDLT will rise, from £300,000 to £450,000. The maximum value of a property on which first time buyers relief can be claimed has increased from £500,000 to £625,000.
- Corporation tax unfrozen – the Government has cancelled the proposed freeze to corporation tax. This will see rates rise from 19% to potentially 25% in April 2023.
Our Head of Tax, Sean Bannister, had the following comments:
“Whilst we welcome the new Chancellor taking swift action to allay, to some extent, the markets concerns, we do worry that tax policy under the current government lacks coherence. The UK’s financial credibility has been damaged by the previous set of announcements because of the lack of a clear indication as to how they would be funded. Unfortunately the cost of failing to communicate this is an increase in interest rates which will have a very real impact on households across the country, and this economic pain is unlikely to subside in the short term”.
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