The last few weeks have indeed seen a series of topsy-turvy events unfold in UK politics.
First, the government’s rather controversial Mini Budget and Growth Plan came to light, receiving a glacial reception, but then, Prime Minister Lizz Truss welcomed a new Chancellor of the Exchequer on board. So while KwasiKwarteng was asked to leave, Jeremy Hunt took over – all in an attempt to calm fears of an increasingly uneasy and uncertain economy.
The end result? Many political analysts and armchair politicians alike are calling this the most significant mini budget U-turn the UK economy has ever witnessed.
What was announced in the Mini Budget and what has now changed
Here’s a quick breakdown of what the government announced in their Mini Budget towards late September and what has changed:
- The government had pledged for the higher income rate of 45% to be slashed altogether.
- There was also a commitment to cut basic income tax rate down to 1-19p per pound by April 2023 – essentially meaning that 31 million people in the UK would save an average of £170 per year.
- Following the U-turn, the government has recalled its decision to abolish the highest income tax rate.
- Mr Hunt has now made it clear that basic income tax rate will now “indefinitely” stay capped at 20p per pound until favorable economic conditions pave the way for a reduction.
- The government had earlier announced that the nation-wide rise in corporation tax (CT), which was set to increase in April from 19% to 25%, would be done away with completely.
- After the U-turn, Ms Truss reaffirmed in a press conference very recently that this flagship policy of her campaign will no longer be pursued and that CT will most definitely rise to 25% in April 2023.
- The government had originally announced that household bills would be reduced by a generous £1,000 in 2022 through energy price guarantee aid and a £400 grant. This energy price guarantee was put in place to cap prices for at least two years.
- However, now, Mr Hunt has announced that the energy price guaranteewill come to an end in April. Following that, the government will provide targeted help to those who require it the most.
- The government had originally promised to make IR35 rules simpler and more “relaxed” – these are rules which control off-payroll employment. Promises were made to change regulations so that the various pension funds would encourage higher UK investments.
- Unfortunately, Mr. Hunt has confirmed that these proposed IR35 changes no longer apply.
- In the original Mini Budget, it was announced that any planned duty increases on beer, wine, cider and spirits would be cancelled abruptly.
- However, Mr Hunt has announced that this is no longer the case – the price of beer, wine, cider and spirits will soon increase.
Change in dividend tax
- It was announced in the Mini Budget that the additional rate applicable to dividend income from April 6 2023 would be done away with, and that the 1.25% increase in dividend rates would also be reversed (made effective in April 2022).
- Mr Hunt now says that this reversal on the 1.25% increase in dividend rates is no longer applicable.
- The government had pledged VAT-free shopping for visitors flying into the UK from other countries.
- This policy has now been completely scraped, according to Mr Hunt.
- It was originally promised that stamp duty which is paid when buying property in England and Northern Ireland will be cut. Furthermore, it was also promised that no stamp duty would be applicable on the first £250,000 payment put down for any property and also that no stamp duty is payable for the first £425,000 worth of property purchased by first-time buyers.
- Interestingly, Mr. Hunt has confirmed that this specific policy is among the few which will actually remain effective in the controversial mini budget.
- Earlier, the government had announced that the planned rise in National Insurance from November 6 would be reversed as employers and workers have been paying an extra 1.25% since April this year.
- Luckily, just like the stamp duty policy which has remained unchanged, this policy will remain unchanged as well.
- The government was planning to scrap rules limiting banker’s bonuses when the mini budget was announced.
- After the U-turn, Mr Hunt has yet to mention anything about bankers’ bonuses in his statement. However, a source from the UK Treasury has come forward with the information that “there’s no change in policy there”. They also mentioned that the cap was nothing more than “bad policy making” and that “it didn’t cap bankers’ pay and was generally undesirable in terms of financial stability”.
Quick recap of what remains and what has been scraped
- Abolishment of CT rise from 19% to 25% – scrapped
- Removal of 45% top rate income tax for high earners – scrapped
- Income tax basic rate reduction of 1-19p – scrapped
- Alcohol duty freezing rates – scrapped
- VAT-free shopping for non-UK/overseas visitors – scrapped
- Reversal in National Insurance rate increase of 1.25% – retained
- No stamp duty on the first £250,000 of property value – retained
- No duty on the first £425,000 of property value for first-time buyers – retained
How will the mini-budget U-turn impact businesses and their payroll?
It has been genuinely tricky for businesses to keep up as so many ‘chops and changes have occurred in a relatively short span of time.
The events which have unfolded since the announcement of the Mini Budget clearly point to one thing: no government can exercise full control over the markets. And, for businesses to thrive and make sound long-term decisions, they must have economic stability.
Growing businesses especially may experience more challenges in dealing with payroll during these economically uncertain times. Fortunately, good financial advice is always on hand to help guide you through the effects of the Mini Budget U-turn: contact information/CTA.