Prime Minister Kwasi Kwarteng unveiled a small budget in parliament this morning, outlining the latest fiscal and monetary policies and the steps the government is taking to protect the people of the UK.
The public has been eagerly awaiting today’s announcement. As the Bank of England announces rising interest rates and soaring inflation, what is Liz Truss’ government doing to support the country?
National insurance increase has reversed
In April, former Prime Minister Rishi Sunak announced an increase in payments to National Insurance to 1.25%. This increase has now been removed.
This increase was initially made to pay for health and social care fees. This funding will now come from general taxation.
This cut will save around 28 million people around £330 a year. For those on a salary of £20,000 a year, the total savings would be around £1.79 a week. However, those with a salary of £100,000 a year will be entitled to an extra £21 a week.
It will also see 920,000 companies save £10,000 a year.
This reversal will take effect on November 6orderwith many workers seeing the effects in their November pay packages.
Cut base interest income tax
Kwarteng begins his announcements with a mention of tax reform. He suggested the government intends to use incentives and tax reforms to expand the economy’s supply.
One of the ways this is being done is through a basic income tax cut. The basic income tax rate has been reduced from 1p to 19p, since April 2023. This is a year earlier than previously proposed. This would cut taxes for 31 million people across the country, allowing for an extra £170 a year.
The highest income tax rate, currently 45 per cent, will be cut to 40 per cent for those earning over £150,000 annually. The Prime Minister suggested this would simplify the tax system and “Make Britain more competitive”.
The Prime Minister also suggested this would increase wages and provide greater opportunities, as well as reward businesses and jobs, encourage growth and benefit the economy as a whole.
Bankers bonus limit raised
The Prime Minister has made the move to remove rules that limit the amount of bonuses bankers can earn. This limit was first introduced in the EU in 2014 following the global financial crisis. Currently, a banker’s bonus cannot be more than double their annual salary.
Mr Kwarteng said the move would make the UK more attractive to the US and Asia, by reducing banks’ fixed costs and encouraging investment.
It has also been announced that tax rates on wine, beer, cider and spirits have been cut. This will be an 18-month transitional measure. All planned tax increases will also be cancelled.
Cut down on stamp duty
Great Britain and Northern Ireland will get a stamp duty cut. Stamp Duty is paid when you buy a property.
The cuts would raise the threshold for a property’s possible pre-tax price. This will double from £125,000 to £250,000. For first-time buyers, the current fee without stamp duty is £300,000. This amount will be increased to £425,000.
“And we will increase the value of property that first-time buyers can claim relief from, from £500,000 to £625,000,” the Chancellor said. This goes into effect today and will be in effect forever. This means that about 200,000 people will not have to pay taxes.
While not part of a small budget, the Prime Minister praised Chancellor Liz Truss for capped energy bills at £2,500, just two days into her new role.
The energy bill relief scheme will reduce energy costs for all UK businesses and charities.
This government intervention is likely to cost £60 billion in the six months from October 1st.
Corporate tax increase is eliminated
Another tax cut confirmed by the Prime Minister is the cancellation of the Corporation tax increase plan. This is the amount of tax companies pay on their profits.
The planned increase is 6%, from 19% to 25%. This has been removed in its entirety. Proponents of the corporate tax cut say it attracts more companies to the UK as well as encourages investment. This will result in more money being paid to the government through taxes.
However, it may not always lead to an increase in taxes payable to the government.
40 new so-called ‘investment zones’ have been announced across the UK. These zones will appear in different areas of the country and will have relaxed zoning regulations and reduced business taxes. This is to encourage investment in these areas.
Shopping without VAT
Travelers entering the UK will be able to claim a VAT refund for purchases made. This is to encourage spending from tourists.
Another announcement has been made regarding General Credit. The rules around UC will be tightened, with benefits reduced if people don’t fulfill their job search commitments. However, those over 50 will have more time with a coach to do this.
About 120,000 more people in UC will be required to take steps to find work and return to the job market.