23 September 2022

Mini-Budget - the Government's Growth Plan

In a week that has already had announced the new Energy Bill Relief Scheme, to provide businesses with some support to pay their rapidly increasing energy bills; and a 0.5 percentage points increase in interest rates announced by the Bank of England, bringing interest rates to 2.5% - today (Friday 23 October) was Chancellor Kwasi Kwarteng's turn in the spotlight as he announced the latest tweaks from Government in an attempt to boost economic growth.

So, what has been announced?
As expected, the government's approach is to boost economic growth by cutting taxes and making some regulatory changes. The government is seeking to lift the UK's annual rate of economic growth to 2.5%. To be more concise, it's all about growth, tax, and regulation.

Previous increases in National Insurance contributions have been removed
National Insurance contributions were increased by 1.25% in April 2022 to help fund the NHS's recovery from Covid and fund improvements in social care. The prime minister had signposted this action in her leadership campaign and this increase has now been removed.

Planned rise in corporation tax has been shelved
Rishi Sunak, the previous Chancellor, had planned for a rise in corporation tax to 25% (from 19%). This increase has now been cancelled; corporation tax will remain at 19%.

Annual investment allowance will remain at £1 million
The Chancellor also announced more relief for businesses by making the Annual Investment Allowance £1 million permanently, rather than letting it return to £200,000 in March 2023. This gives 100% tax relief to businesses on their plant and machinery investments up to the higher £1 million limit.

Income tax reduced
The Chancellor has announced a one percentage point cut in income tax (to 19%), to come into effect in April 2023, bringing forward a previously promised cut for 2024. 

The top tier rate of income tax, which taxed earnings over £150,000 at 45%, has been abolished. There is now a single higher rate of 40%.

(Neither of these changes will automatically apply in Scotland, people earning more than £150,000 in Scotlanc currently pay a 46% tax rate.)

Stamp duty cut
In an attempt to generate activity in the property market and support first-time buyers the government has announced a cut to stamp duty. The lower threshold of how much a property costs before tax is due has been increased to £250,000 (first-time buyers will pay no stamp duty on properties up to £425,000, up from £300,000). The value of the property on which first-time buyers can claim relief has increased, from £500,000 to £625,000.

Investment zones to be established
The Government is seeking to establish areas in England and with low taxes and low regulations to facilitate investment, employment, and growth. There will be similar opportunities in Wales, Scotland, and Northern Ireland.

Banker bonus cap scrapped
The EU-wide cap on bankers' bonuses is to be scrapped, more details to come later in the Autumn.

In the coming weeks, the Government is expected to set out further details of plans to speed up digital infrastructure, reform business regulation, increase housing supply, improve the immigration system, make childcare cheaper, improve farming productivity, and support the financial services sector.