Please note: the information in this article has now changed. Please visit our Key points in the Mini-budget tax reversals article to find the most up-to-date information regarding the Mini-budget’ and the changes made since the announcement below.
New Chancellor, Kwasi Kwarteng, announced his Growth Plan, or ‘mini-budget’ as it has also been called, to the House of Commons on Friday 23 September 2022.
The phrase ‘the world has changed a lot’ was the intro to our Spring Statement back in March and is still appropriate 6 months later. The biggest change in Government was the appointment of a new leader, with Liz Truss becoming Prime Minister earlier this month. With a new Prime Minister, comes a new cabinet and Kwasi Kwarteng took over the reins as Chancellor of the Exchequer on 6 September. The former Secretary of State at the Department of Business, Energy and Industrial Strategy was expected to make big announcements to ease the burden of the cost-of-living crisis both for individuals and businesses.
Still recovering from a post pandemic world, as well as the impact of the ongoing war in the Ukraine, the country is facing an energy crisis, with bills expected to hit a record high in the coming months, The Bank of England announced that interest rates had risen to 2.25%, the highest they have been in 14 years and warned that the UK may already be in a recession, and just a few days before the mini-budget was announced, the pound hit a 37-year low against the dollar.
So, with a lot to tackle in just a short space of time, and tax cuts promised by the new PM during the leadership debates, it was not surprising that experts were predicting, ahead of the announcement at 9.30am, that we were due the biggest tax-cutting event for 34 years.
All eyes were on Kwasi Kwarteng as he stood at the despatch box for his first time as Chancellor, so what were amongst his announcements as he outlined his ‘Growth Plan’ and what impact will this have on business?
In our DJH Mitten Clarke Mini-Budget Report we look at The Chancellor’s announcements in detail but here are some of the key highlights:
Cost of Energy support
To kick things off he started in tackling the rising cost in energy, highlighting 3 ways that support will be provided for households, businesses and energy companies.
1. Energy Price Guarantee – for households
- Announced before the budget but touched upon by the Chancellor at the start of his announcement.
- Support sees the guarantee replace the former energy price cap and sets the highest amount that suppliers are allowed to charge domestic households for each unit of energy they use.
- With the new guarantee, it’s expected to cost a typical household £2,500 a year for energy.
2. Energy Bill Relief Scheme – for businesses
- This support package was again announced pre-budget and will see energy bills for UK business to be cut by half of their expected level.
- The scheme will fix wholesale gas and electric prices for firms for 6 months from 1 October.
- Hospitals, schools and charities will also be covered by the scheme.
- Supplier will apply reductions to all bills with the government compensating suppliers for the reduction.
3. Energy Market Financing Scheme – for energy companies
In partnership with the Bank of England, the scheme looks to provide support for the liquidity requirements faced by energy firms, which in turn should provide resilience to energy and financial markets, as well as the economy.
Reversal of NI and Corporation Tax rises
As mentioned already, throughout her leadership campaign, the new PM spoke about her goal to cut taxes to help promote economic growth for the country. A topic she mentioned specifically during the debates was a change to the National Insurance (NI) rise and this was confirmed by the Chancellor.
- National Insurance (NI) contribution will be cut by 1.25% for employees, employers and the self-employed.
- Reverses the uplift that was outlined by former Chancellor, Rishi Sunak, in his Spring Statement, 6 months ago.
- Will come into effect on 6 November 2022 and will mean the ring-fenced Health and Social care levy, due to be introduced in April 2023, will now not go ahead.
- It will free up £9,600 on average for business to invest, employ and grow.
The NI rise wasn’t the only thing that was reversed from the Spring Statement, Corporation Tax, due to increase to 25% in April 2023, will remain at its current rate of 19% instead.
The Growth Plan went further still with these reversals, with IR35 being highlighted as adding additional cost and complexity to the tax process and, as a result, was repealed by the Chancellor.
Income Tax and Stamp Duty
There were still remnants of the Spring Statement within the new Growth Plan though. The basic rate of income tax will still be cut, but has been brought forward by 12 months to April 2023, from its current rate of 20%, to 19%.
The additional rate, set at 45% for those earning over £150,000, was also due to be abolished, however, on 3 October the Chancellor announced that the government would no longer be proceeding with this.
Stamp Duty cuts were announced to help people on all levels of the residential property market. With the nil-rate band for all buyers, on properties worth up to £250,000, doubled from its previous rate, with first-time buyers also seeing no Stamp Duty payment for homes up to £425,000.
Tax Incentives for Business
There was also a number of tax incentives for businesses announced with one of the main focuses being the launch of new Investment Zones. Investment Zones, or ‘Specified Sites’ as called by the Chancellor in his speech, will benefit from a range of time-limited tax incentives over 10 years, which includes:
- Working on 38 areas to drive growth and unlock housing development. These are confirmed in England and work is underway to find areas in the rest of the United Kingdom.
- There will be 100% relief from business rates on newly occupied business premises, with certain existing businesses if they expand within these tax sites.
- There will be enhanced capital allowances too, with 100% first year allowances for companies’ and qualifying expenditure on plant and machinery assets for use in tax sites.
- Enhanced Structures and Buildings Allowance – accelerated relief to allow businesses to reduce their taxable profits.
The Annual Investment Allowance (AIA), that was due to be reduced back to £200,000 after March 2023, will instead remain at £1,000,000 and has now been made permanent.
The hospitality industry will also see a boost with a freeze on alcohol duty from February 2023. This will see a tax cut of around £600 million.
Encouraging future growth
The Chancellor didn’t stop there in outlining his plans for the future growth of the economy, with an ambitious aim to achieve a trend growth rate of 2.5% to help support ‘jobs, higher wages, and more money for schools and the National Health Service’. Also included within his Growth Plan were:
- New legislation to reform planning permission on major infrastructure projects.
- The Seed Enterprise Investment Scheme was expanded, to allow early-stage companies the finances they need to grow.
- The Company Share Option Plan (CSOP) limit was increased to £60,000, so employees can further share in their business’s success.