Chancellor Kwasi Kwarteng delivered his fiscal statement to the House of Commons on Friday 23 September.
The British pound fell around 3% to below $1.1 on Friday, a fresh low since 1985 after the government announced several tax cuts. As I write today, the pound weakened below $1.07. The pound has so far depreciated by over 20% (see chart below) since the start to the year, raising expectations of steep interest rate hikes.
The UK economy is experiencing a challenging period and is in for a tough period in coming months as it battles high inflation, depreciating currency and rising rates. The mini-budget is expected to raise UK’s debt to possibly unsustainable levels. The UK Debt Management Office is raising its debt issuance plans for the current financial year by £72.4 billion, reflecting the funding required for all measures announced.
Here are Key highlights of mini-budget 2022:
Income Tax
• The Chancellor did not make any changes to the personal allowance (the amount you can earn each year before you start paying income tax) or the higher-rate tax threshold. These will remain at £12,570 and £50,270, respectively, after being frozen in April 2021 for five years.
• Reduction in the basic rate of income tax for those living in England, Wales and Northern Ireland will take place sooner than expected. The rate was due to be lowered from 20% to 19% from April 2024, but this reduction will now come into effect from April 2023.
• From 6 April 2023, those living in England, Wales and Northern Ireland will no longer pay 45% tax on annual income exceeding £150,000. Instead, all annual income above £50,270 will be taxed at 40%, the current higher rate of income tax.
National Insurance
• From 6 November 2022, the rate of NI will fall from 13.25% to 12% on earnings between the primary threshold (£12,570) and the upper earnings limit (£50,270) and from 3.25% to 2% on earnings above this.
Corporation Tax
• The Chancellor announced that the planned increase in corporation tax will no longer go ahead. The main rate of corporation tax was due to rise to 25% in April 2023, but it will now remain at 19%.
Dividends
• The annual dividend allowance will remain at £2,000 (the amount of dividend income you do not have to pay tax on).
• Investors will benefit from lower dividend tax after the Chancellor announced April’s 1.25% hike will be reversed. As of 6 April 2023, the rate of dividend tax will revert to 7.5% for basic-rate taxpayers and 32.5% for higher-rate taxpayers.
• Additional-rate dividend tax will be scrapped to align with the removal of additional-rate income tax.
Stamp Duty
• Stamp duty land tax in England and Northern Ireland has been immediately reformed. The level at which homebuyers start paying stamp duty has doubled from £125,000 to £250,000. First-time buyers will start paying stamp duty if their first home costs £425,000 or more, up from £300,000 previously. The value of the property on which first-time buyers can claim stamp duty relief has also risen to £625,000 from £500,000.
Other key highlights
• Cap on bankers’ bonuses will be removed.
• Initiatives to assist with high energy bills.
• Employment: cuts to benefits for those who are unemployed and not finding work.
• Incentives to get over 50s back into work.
• Planning reforms, including disposal of surplus government land.
• The government intends to create new Investment Zones getting special treatment for tax, regulation and local governance.
• 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.
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