The biggest tax cutting event in 50 years

Following the recent period of national mourning, today’s proceedings in Parliament reflect perhaps both a return to normality, and the sense of urgency being felt in the country to address key issues which have been escalating during the 11 weeks since Boris Johnson’s resignation.

As expected, the underlying legislation to follow today’s mini-budget – formally titled “The Growth Plan 2022” – will codify the previously announced package of support measures designed to tackle rising energy prices and many other issues the UK economy is currently facing.

These interventions are expected to be broadly welcomed by households and business alike but the strategy of increasing borrowing to fund short term measures such as these will inevitably attract criticism. Chancellor Kwarteng assures us that his proposals should help bring down inflation, protect businesses and support economic activity, and thus avoid a deep recession. As ever, we remain cautiously optimistic, but only time will tell.

In tandem with this came a raft of announcements intended to encourage economic growth – a word which appears no less than 174 times in the government’s supporting document – focussing on reform to the supply side of the economy, providing numerous tax reliefs to support employment and encourage investment. Prime amongst these is the cancellation of the planned increase in corporation tax, which was due to take effect from April 2023, keeping the rate at 19%.

These stimuli also included proposals to reform some of the technical regulations which currently cap the charges on workplace pensions at 0.75% p.a. The intention is to bring “well-designed” performance fees outside the scope of the charge cap, with the aim of stimulating investment of pension fund capital into innovative UK businesses and infrastructure projects. This should result in a broadening of the investment choices for pension scheme members, as well as the potential of higher investment returns, although naturally these cannot be guaranteed.

In a seemingly direct response to the growing cost of living crisis, there will also be a few significant changes to the personal tax system.

We had already been made aware of the intention to reverse the recent 1.25% increase in national insurance contributions (NICs), and it was confirmed that this will take effect from the “earliest opportunity” on 6^th November this year. The planned transition of this increase into the Health and Social Care levy from April 2023 has also been scrapped, which will benefit both workers and their employers alike.

In addition to the more imminent changes, April 2023 will now bring with it several direct tax cuts, and we have summarised the position for residents of England and Northern Ireland below. Both the Scottish and Welsh devolved governments have been promised equivalent funding to allocate as they see fit, and we expect further announcements in due course.

The basic rate of income tax will reduce by 1% to 19% and comes with a £5bn price tag. Unlike the NIC reductions, this will also benefit those receiving pension and/or rental income.

At the other end of the scale, and somewhat unexpectedly, comes the complete removal of the additional (45%) rate of income tax (currently applicable to income of more than £150,000 p.a.) with effect from April 2023, exactly ten years after its introduction. We expect that a tax break which so clearly targets the highest-paid will be a hard sell politically in the current economic climate and can be seen as reflective of the current administration’s belief in the benefits of “trickle down” economic stimulus.

Owners of shares will not miss out either, benefitting from both a reversal of the recent increase of 1.25% in the basic rate dividend tax (back to 7.5%), and the scrapping of the additional rate band. Once again, both will take effect from April 2023.

The planned tax cuts also extend to Stamp Duty Land Tax (SDLT) and, in line with previous changes, will take effect immediately from the date of the budget, 23^rd September. These broadly mirror the stamp duty holiday brought in during the COVID pandemic, increasing the threshold at which SDLT must be paid from £125,000 to £250,000.

Thresholds for first time home buyers also see an uplift from £300,000 to £450,000, together with the limit on the maximum value of the property upon which first time buyer relief can be claimed from £500,000 to £625,000.

As a property-obsessed nation, any reduction in the SDLT rates will always be embraced by those seeking to buy a home, but it remains to be seen what real impact this might have on the existing structural inequalities in the housing market, particularly in the shadow of rising borrowing costs.

For completeness, we should note that capital gains tax (CGT) has once again enjoyed a reprieve, as do the various rules attaching to pensions, although naturally changes in income tax rates will inevitably slightly weaken the benefit of any attaching tax relief.

With a new Prime Minister, Chancellor, and wider cabinet, a period of change was perhaps inevitable. It is with some poignancy that we note the cover of today’s growth plan: “Presented to Parliament by the Chancellor of the Exchequer by Command of His Majesty” – a small but significant change in pronoun which will take a little while to get used to.

P.S – Those who prefer to immerse themselves in the details can find full details on HM Treasury’s website using the following link:

https://www.gov.uk/government/publications/the-growth-plan-2022-documents