Mini-Budget 2022 - Have they finally listened hard enough?

3 October 2022

“We get it, and we have listened.” 

One of the most startling and controversial announcements in Kwasi Kwarteng’s fiscal event ten days ago was that the 45% additional rate of tax would be abolished from April 2023.  

"In the face of threats of rebellion, Mr Kwarteng announced this morning that the government would not proceed with the cut.

Such a dramatic change so soon after the announcement and the reported level of discontent with other recent announcements must lead to questions about what other U-turns are to come.

Have they listened hard enough?"

Our commentary on the Chancellor's original statement follows below. 

23 September 2022

Liz Truss promised to cut taxes and today her Chancellor, Kwasi Kwarteng, delivered.

The Chancellor’s speech was a dramatic and almost breathless list of cancelled tax increases, tax reductions and tax incentives, and suggested that more are to come.

The tax changes announced today go beyond even those trailed over the past few weeks and, as the government claims, may well amount to the ‘biggest package of tax cuts in generations’.

I had certainly expected that the 45% additional rate of tax would outlast my working life, instead it will be gone next April. We all hope that the change will ‘benefit the whole economy and the whole country’ as Mr Kwarteng predicts.

The Chancellor’s speech was a dramatic and almost breathless list of cancelled tax increases, tax reductions and tax incentives and suggested that more are to come. The reversal of the 1.25% National Insurance Contributions (NIC)  increase that was introduced in April had already been announced, together with the cancellation of the Health and Social Care levy that was due to replace it next April.

Cancelling the proposed increase in corporation tax from 19% to 25% that was due next April was expected and there was also no surprise in bringing forward the planned reduction in basic rate income tax, which will now drop to 19% from 6 April 2023.

There is more good news in that charities will still benefit from a 25p per £1 reclaim as basic rate relief will remain at 20% until April 2027.

Rumours of reductions in Stamp Duty Land Tax (SDLT) had been circulating all week, although this is one area where the measures taken were less newsworthy than might have been expected. The SDLT threshold will double from £125,000 to £250,000, with first time buyers benefiting from an increased threshold of £425,000 on properties with a value of up to £625,000. Unusually, the changes to SDLT are ‘permanent’.

More surprise came with the promise to unwind recent changes to the IR35 rules. It seems clear that the impact on the users of contractors was far more significant than had been expected, but this reversal risks a return to past uncertainty over tax treatment.

Business investment will be encouraged by maintaining the Annual Investment Allowance limit at £1m rather than, cancelling the planned reduction back to £200,000. Happily, we are told that this threshold will remain ‘permanently’, hopefully ending the yo-yo like movements since the allowance was introduced in 2008.

New investment zones were also announced, although locations are being discussed. These zones will benefit from a range of reliefs including accelerated tax relief for structures and buildings, 100% tax relief for plant and machinery, zero business rates for new occupiers and zero National Insurance on new employees.

Tax simplicity is Mr Kwarteng’s goal, and we must hope that more can be achieved with tax officials taking over the mandate from the Office of Tax Simplification. There could be an early test with the introduction of VAT free shopping for overseas visitors although we are promised a modern, digital system. Retailers will need to be alert for changes to their systems.

Finally, the promise of more to come.

The Enterprise Investment Scheme and Venture Capital Trusts will be extended and the limits for the Seed Enterprise Investment Scheme and Company Share Option Plans will be extended. Details are yet to be announced.

Few would argue with the government’s drive for growth set out so passionately and clearly by the Chancellor today. Many, though, would question the approach that he has set out. The battle lines are clearly drawn between the government and the opposition, and with Mr Kwarteng’s predecessor.