So, here we go again.
The market’s explosive reaction to Mr Kwarteng’s wide-ranging tax cuts triggered a series of events that led to his ‘invitation’ to resign from his post.
The pound plunged, mortgage rates rose, policies were reversed, and the Bank of England has been forced into making some pretty seismic economic interventions – buying bonds and raising interest rates.
The government had already reneged on its plans to abolish the 45p tax rate. And, following Kwarteng’s rather un-ceremonial dismissal, the Prime Minister then announced that the 6% rise in Corporation Tax – which she’d initially intended to scrap – was to go ahead after all. Even in the face of these rather humbling policy U-turns, there remains a pretty bulky black hole in the country’s finances – a black hole that the latest Chancellor has been tasked with filling.
But before he’d even had chance to move his furniture into Number 11, Mr Hunt today sought to tackle the deficit, reassure the markets, and calm the chaos by delivering *yet another* financial intervention from the government.
Changing course so radically – and changing Chancellor so swiftly – is being viewed by many as a final throw of the dice by an embattled PM. So, the stakes were particularly high as Jeremy Hunt unveiled his plans.
Let’s take a look at what he announced…
*Spoiler alert, he began by declaring the reversal of ‘almost all the tax measures announced three weeks ago,’ leading one prominent commentator to describe this as the ‘biggest U-turn in British economic history’.
A month is, indeed, a very long time in politics.
The repealing of reforms to off-payroll working (IR35) in both the public and private sectors will no longer go ahead.
To be clear, the responsibility for determining the employment status of those who provide their services via an intermediary – such as a personal service company – will remain with the end client.
Since the changes came into force in 2017 (public sector) and 2021 (private sector) respectively, the ‘payer’ has been liable for deciding whether or not the contractor (‘payee’) is employed or self-employed.
In the mini-Budget last month, that accountability was slated to return to the individual. But, as of today, that will no longer be the case.
One of the key announcements in the mini-Budget was the trimming of the basic rate of income tax from 20 pence in the pound to 19p. The change, scheduled for next April, had been estimated to save at least £170 a year for over 31 million Brits.
This proposal, a cornerstone of Liz Truss’s leadership campaign, has now been canned.
The new Chancellor said it was ‘not right’ to be borrowing in order to fund such a tax cut and that the rate will remain at 20% until ‘circumstances allow it to be lowered’. Furthermore, Rishi Sunak’s original plan to cut this rate in 2024 has also been postponed. So, those who currently pay 20% on annual earnings up to £50,270 (from £12,571) will continue to do so.
Taken together with the retaining of the top rate of Income Tax and the rise in Corporation Tax, Mr Hunt estimates that his plans will save over £30bn annually.
The reversal of the recent rise in National Insurance, however, will be implemented as planned next month.
The initial 1.25 percentage point increase was another policy introduced by Mr Sunak. It’s meant that, since April, employers, employees, and the self-employed have paid an additional 1.25 pence in the pound in National Insurance contributions. That will be scrapped in a matter of weeks.
The previous Chancellor, if you’re still keeping up, announced in the mini-Budget a reversal of his own predecessor’s dividend tax rise, which was estimated to save investors an average of £345. Tax on dividend income increased by 1.25% earlier this year, but Mr Kwarteng unveiled plans to scrap this three weeks ago in a bid to ‘support entrepreneurs and investors’ and enable growth.
Mr Hunt’s statement today puts pay to that as well.
The situation remains as is, with directors and business owners able to earn up to £2,000 a year before paying any dividend-related taxes. After that, those paying the basic rate of tax will pay 8.75% on any dividends they draw from their company. Higher-rate payers pay 33.75% and those earning north of £150,000 a year pay 39.35% in dividend tax.
Energy Price ‘Guarantee’
At the beginning of September, the government introduced a £2,500 energy price cap to support people with their escalating energy bills. It was due to be in place for two years. In addition, the introduction of an ‘energy bill relief scheme’ for businesses was to provide a price guarantee similar to that offered to UK households.
And, whilst that help remains in place, for now, it will only last for six months, rather than the two years initially proclaimed.
Furthermore, a Treasury-led review will take place in the new tax year looking into how people are aided with their energy bills. It will aim to make the support more targeted and more efficient in a bid to cost the taxpayer less. Likewise, business support will also go to those most affected – incentivising energy efficiency.
The stamp duty cut in England and Northern Ireland will remain in place. That means no stamp duty is paid on the first £250,000 of a property’s value.
Furthermore, the threshold for first-time buyers stands at £425,000. Government estimates suggest that around 200,000 more people will now avoid paying stamp duty altogether as a result.
Annual Investment Allowance
The Annual Investment Allowance will remain at £1million. The AIA is a tax relief on plant and technology investment and was initially due to return to £200,000 next March before the change announced in the recent mini-Budget.
That pledge means businesses will continue getting 100% tax relief on their plant and machinery investments up to £1m.
Combatting Rising Mortgage Rates
It’s no secret that mortgage rates have risen rapidly in recent months. And, in light of Mr Hunt’s announcements today, industry insiders are expecting lenders to ‘play safe’ for the immediate future and await the reaction of the markets (and the Bank of England!) before deciding on any change of course. After all, whatever impact Mr Hunt’s proposals make, and markets do appear to have been tempered slightly, inflation and interest rates are unlikely to reduce significantly as a result.
If you’re currently on a fixed, tracker or discount mortgage deal your rate is likely to increase if you allow your mortgage to move to a Standard Variable Rate (SVR). So, it’s imperative to get in early and plan your re-mortgage well in advance.
Book a consultation with Sharon, our Mortgage & Protection Specialist, now and make the most of your next mortgage deal. You can choose to meet in person, chat over the phone, or connect via video call, it’s entirely up to you.
- The freeze on alcohol duty has been cancelled.
- ‘VAT-free shopping’ for overseas visitors has also been reversed.
- It appears at this stage that the controversial removal of the cap on bankers’ bonuses will remain in place. The cap was first introduced across the EU in the aftermath of the global financial crisis meaning bankers could not receive a bonus higher than twice that of their annual salary – unless agreed by shareholders. This still looks set to be cancelled, though.
- Mr Hunt also cautioned that there would be ‘further difficult decisions’ surrounding spending and taxation in the days and weeks to come as the government ‘delivers its commitment to get debt falling as a share of the economy over the medium-term’. ‘All departments will redouble their efforts to find savings and cut spending’ he continued.
The Chancellor will expand on those plans in yet another fiscal statement at the end of the month, where he will publish the government’s fiscal rules alongside an OBR forecast.
So, watch this space.
Sam Wright is Danbro’s Marketing Manager. He produces regular content and feature articles on our digital and non-digital channels – and social platforms – for the Danbro Group and its subsidiaries, as well as having responsibility for the Company’s internal and external communications.
His background is in Journalism and Creative Writing, having previously contributed to publications such as The Daily Post, The Lancashire Evening Post, and The Blackpool Gazette.
He is a keen swimmer and avid Manchester United fan (but don’t hold that against him), and he lives in Lancashire with his wife, Sarah.