Energy bill assistance
Prime Minister Liz Truss previously announced a series of measures to support people through the cost-of-living crisis. This included a price cap to keep average household bills below or at £2,500 for the next two years.
Today Chancellor Kwasi Kwarteng began his announcement by addressing the energy crisis for both households and businesses – proposing an energy bill relief scheme that will reduce wholesale energy costs for all UK businesses, charities and the public sector. According to Kwarteng, this will provide a price guarantee equivalent to that of households.
The energy package subsidising both domestic and business energy bills will cost £60bn for the next six months.
National Insurance rises reversed
In April of this year, ex-Chancellor Rishi Sunak increased National Insurance by 1.25% – saying the money would fund health and social care. As announced yesterday, the government is reversing this rise, effective from 6 November. This funding is now to come from general taxation. This will be welcome news for many as it means more people will have more money in their pockets in the coming months.
In addition to the reversal to the National Insurance rate, tax on dividend income will also be cut by 1.25% from next April, helping in particular retired clients who are living off savings income.
Income tax rates to be cut
Thresholds for basic-rate and higher-rate taxpayers in England and Wales had previously been frozen at £12,570 and £50,270 until 2026, meaning no opportunity to benefit from incremental increases in line with inflation. Plus, given that we’re living in a period of soaring inflation, in real terms the value of many people’s income has been falling.
Chancellor Kwasi Kwarteng has announced today that the basic rate of income tax would be cut by 1% from April 2023, from 20p in the pound to 19p – this has been brought forward a year.
The chancellor is also abolishing the top rate of income tax – a major benefit for the highest earners in the country. The highest rate of income tax is currently 45% and paid by those earning over £150,000. From April 2023 there will be a single higher rate of income tax of 40%. According to Kwarteng: ‘This will simplify the tax system and make Britain more competitive… It will reward enterprise and work. It will incentivise growth. It will benefit the whole economy and the whole country.’
Please be aware that if you live in Scotland, bands and rates of tax are different. You can find out more about Scottish tax rates here.
Low-tax investment zones will be set up across the UK
There are to be more than 40 new investment zones created in England. The zones – expected to be in areas including the West Midlands, the Tees Valley and Somerset – will be allowed to relax planning rules and reduce business taxes to encourage investment.
Stamp duty cuts
In England, the level at which house-buyers begin to pay stamp duty has been doubled from £125,000 to £250,000 and first-time buyers will pay no stamp duty on homes worth £450,000. This is up from £300,000 and is effective immediately.
Cap on bankers' bonuses lifted and corporation tax increase scrapped
The cap on bankers' bonuses, which limited rewards to twice the salary level, has been lifted. And a planned rise in corporation tax from 19% to 25% has also been scrapped in order to boost economic growth.
Changes to investment rules for Enterprise Investment Schemes and Venture Capital Trusts
The government has detailed changes to the investment rules for Enterprise Investment Schemes (EIS) and Venture Capital Trusts (VCTs) – with both being extended beyond 2025.The limits on Seed Enterprise Investment Schemes (SEIS) have also been doubled to £200,000.
Strike action - trade unions required to put pay offers to members
The chancellor announced the government will introduce legislation that will require trade unions to put pay offers from employers to a vote of members. This is so that strikes can only be called once negotiations have fully broken down, Kwarteng explained.
Tax-free shopping for overseas visitors and duty rates for alcohol axed
Other measures include an introduction of VAT-free shopping for overseas visitors and the previously planned increases in the duty rates for beer, cider, wine, and spirits will all be cancelled.
Our view on the mini-budget
Commenting on the announcements, our financial planning expert Shona Lowe said:
“The Chancellor’s growth plan could be considered good news for many. Scrapping the National Insurance rise will put more money directly into millions of people’s pockets, which will make a positive difference in the coming months. The confirmed measures to tackle rocketing energy prices should also provide some relief as we head into winter. A clear drive to simplify and cut tax, seen in the 1p reduction in the basic rate of income tax, the single higher rate tax band and stamp duty, will be welcome news to many. And the changes announced today will be welcomed by savers who receive dividends from investments.
“That said, these are individual targeted measures that won’t benefit everyone in the same way or to the same extent. It’s not clear how the tax cuts and spending commitments will be funded and what this could mean in the future, nor it is obvious how those on the lowest incomes will be supported on the day-to-day cost of living. The show-stopping scrapping of the National Insurance rise obviously also does nothing to help those who don’t pay NI which will be the vast majority of retirees. These are people who are already very vulnerable to the rising cost of living as they use savings to support their lifestyles. They and others who benefit less from the changes announced will be looking for further detail on today’s measures, and more, from the Chancellor in his Autumn Statement. As we head into turbulent times, clarity has never been more important.”
We’re here to help
If you have any questions about how what’s been announced may affect you, get in touch with your abrdn financial planner. They’ll be happy to help.
The information in this article should not be regarded as financial advice. Information is based on our understanding in September 2022. Tax rules can always change in the future. Your own circumstances and where you live in the UK could have an impact on tax treatment. The value of investments can go down as well as up, and could be worth less than was paid in.