Mini Budget – Where are we now?
Following a mini budget announcement that rocked the markets, the government made a dramatic u-turn. That mini budget has since had further u-turns, not to mention the latest turnaround in Prime Minister and Chancellor – it’s a struggle to keep up!
Where are we now?
On the morning of 17 October, Jeremy Hunt, the new Chancellor of the Exchequer, re-visited the Mini Budget announcements made by Kwasi Kwarteng on 23 September.
Jeremy Hunt is due to make a full statement 17th November (was 31st October but delayed), of which we will cover, but it’s important to understand, despite the turmoil, what is actually being reversed, and what is not (as it currently stands).
Jeremy Hunt said he would reverse everything that had not already started a parliamentary process. So far, only two of the Mini-Budget measures have been subject to a legislative process and so will remain from Kwasi Kwarteng’s statement:
Mini Budget measures in Summary
- Corporation Tax rise from 19% to 25%
- Income Tax 45p top rate
- Income Tax cutting basic rate by 1p to 19p
- Alcohol Duty
- VAT Tax-free shopping
- National Insurance – reversing 1.25% rise
- Stamp Duty – no duty on first £250,000
- First-Time buyers – no duty on first £425,000
The government’s Energy Price Guarantee was originally put in place for two years – to limit the price that suppliers could charge for each unit of energy.
Now that will only be in place for six months, just to cover this winter. The Treasury will review support given from April, but Mr Hunt said there would be “a new approach” targeting those in the most need.
For a typical household – one that uses 12,000 kWh (kilowatt hours) of gas a year, and 2,900 kWh of electricity a year – it means the annual bill will be £2,500 until next spring. Last winter it was £1,277 a year.
Income tax cuts
A cut in the basic rate of income tax – which had been promised by two chancellors this year – has been cancelled.
In the spring, Rishi Sunak, when chancellor, pledged to reduce the basic rate of income tax by 1p in the pound before the end of the Parliament in 2024.
Kwasi Kwarteng, when chancellor, said this would be brought forward to April 2023.
Now Jeremy Hunt has said the basic rate of income tax will stay at 20% indefinitely. This means your income tax rates will remain unchanged.
The proposed abolition of the 45% additional rate of tax, which is paid by people who earn more than £150,000 a year, had already been ruled out.
Mortgage rates have been rising – a trend that was accelerated after the mini-budget.
But brokers say borrowers should not expect the dismantling of that economic statement to feed through to an immediate reversal in mortgage rates.
Lenders are likely to “play safe”, waiting to see how the markets react to the changes, and – critically – what the Bank of England is likely to do with interest rates. Any lender dropping their rates now could also be inundated with demand.
The backdrop is unchanged. Inflation is still high, and the Bank is still expected to tackle that with higher interest rates. Average rates have been unchanged in recent days.
Planned increases in the duty rates for beer, cider, wine and spirits will now go ahead, rather than being cancelled.
Alcoholic drinks are classed in to tax categories – beer, cider, wine, sparkling wine and spirits. There are 15 different tax rates based on type of alcohol, strength and production method.
The increase in this tax from February 2023 will be worth around £600m a year.
The change in the threshold of how much a property has to cost in England and Northern Ireland before stamp duty is paid from £125,000 to £250,000 will stay.
First-time buyers will pay the tax on properties costing more than £425,000. Discounted stamp duty for first-time buyers will apply up to £625,000.
Homebuyers in London and the South East of England will benefit the most from this. They pay 65% of all stamp duty as prices are higher and the tax is particularly focused on homes of more than £500,000, according to research by Zoopla. Three-quarters (76%) of stamp duty came from homes priced at more than £500,000.
Anyone on the major benefits – such as universal credit – should expect a rise in what they receive. However, that will not come until April.
There is no clarity yet about whether this rise will be in line with rising prices, or the lower increase in average wages.
Mr Hunt said that would be “difficult decisions” to come on tax and spending – but support for the most vulnerable would be prioritised.
Jeremy Hunt was not explicit about the Investment Zones announced by Kwasi Kwarteng last month, but HM Treasury is definitely in control now and those low-tax areas were seen as risking too much tax leakage, so they never looked very likely to be introduced. Nor, in his brief televised statement, was there any mention of the previously announced abolition of the Office for Tax Simplification (OTS).
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