Amid rampant inflation, as well as what some have dubbed the worst cost-of-living crisis since the 1970s, Kwarteng promised to tackle rising energy bills and “expand the supply side of the economy through tax incentives and reform” – including slashing corporation tax and income tax rates, and raising SDLT relief thresholds – just a day after announcing the reversal of the 1.25 percentage point National Insurance Contributions (NIC) hike.
Many welcomed the speech. Institute of Directors (IoD) chief economist Kitty Ussher hailed it as “a good day for British business” while Catax director of tax Nigel Holmes declared “businesses have lots to smile about as the government throws the kitchen sink at growth”.
However, concerns about the cost of the tax cuts (estimated to be £45bn) and lack of Office of Budget Responsibility (OBR) assessment were expressed. Meanwhile, the pound sterling plunged against the dollar on the chancellor’s announcement as ten-year gilt yields rose sharply, which sparked further inflationary fears in some quarters.
Income taxes
From April 2023, Kwarteng said, “we will have a single higher rate of income tax of 40%” while the basic rate of income tax will be cut to 19%. Will Stevens, Killik & Co head of financial planning, called the additional rate cut “one of the most significant income tax changes in recent times”, adding that the UK’s highest earners “will also benefit from the abolition of the additional rate of dividend tax”. The basic rate cut “benefits all taxpayers, aiding with the cost-of-living crisis faced by many and should stimulate the economy further,” he added.
“However, the longer-term effect could apply further pressure to already high levels of inflation, and there is fear that future generations will be left to pick up the bill for tax cuts made now.”
Simon Crookston, Crowe UK partner, said the removal of the additional 45% income tax rate band was unexpected and welcome. Crookston added that in these times of increasing inflation and reduced growth, “we need to further stimulate the economy to encourage growth”. Fellow Crowe UK partner Nicky Owen noted the employers’ NIC rate reversal (from 6 November): “With the current shortage of talent that firms are currently experiencing, this reduction is unlikely to be noticed – people costs are rising as firms hike up salaries.”
Business taxation
Kwarteng confirmed next year’s planned corporation tax rate increase to 25% would be cancelled, and remain at 19%: “the lowest rate in the G20 [which] will plough almost £19bn a year back into the economy.” While Kitty Ussher said the move was “of particular relief” to the IoD – along with the employers’ NIC rate reversal, retention of the £1m Annual Investment Allowance, and extension of the Enterprise Investment Scheme beyond its sunset clause – RSM corporate tax partner James Morris noted the rate hike cancellation was “an expensive decision”. With the higher rate anticipated to raise up to £17bn annually when it was announced in 2021, “the government will be hoping this policy reversal provides an effective fiscal stimulus that mitigates the shortfall,” Morris noted.
To simplify the IR35 rules, the chancellor announced the government would repeal the 2017 and 2021 reforms. He said: “In practice, reforms to off-payroll working have added unnecessary complexity and cost for many businesses.”
BDO employment tax partner John Chaplin said the IR35 move was “certainly likely to be welcomed” by individuals and businesses alike, adding: “The current IR35 rules were implemented to tackle non-compliance with the old rules. If the clock is turned back, will we simply have a return to non-compliance? While compliant businesses and contractors are in a healthy position, today’s announcement could help open the door to those wishing to promote tax avoidance.”
On VAT, the chancellor said he would introduce VAT-free shopping for overseas visitors, replacing the old paper-based system with a modern, digital one to stimulate tourism and retail. But Nucleus Commercial Finance CEO Chirag Shah commented: “Even with the reversal of the planned hike to corporation tax, real substantive and comprehensive financial support for SME businesses slipped off the agenda in today’s Budget. While the government’s £60bn energy package goes some way to ease business cost pressures at supply level, there was precious little else delivered guarantee[ing] support for the SME economy.”
Stamp Duty
In a bid to boost home ownership, Kwarteng announced the stamp duty land tax (SDLT) threshold for relief would double from £125,000 to £250,000; while for first-time buyers the relief threshold would increase from £300,000 to £425,000.
The value of the property on which first time buyers can claim relief is increasing from £500,000 to £625,000. BDO tax partner Paul Falvey called this “a welcome boost to some buyers, particularly those who were marginally above the previous nil-rate”. Lewis Shaw, founder of Shaw Financial Services, said: “For aspiring homeowners this is great news. Along with [other tax cuts] it’s certainly a bold and radical plan for growth. Let’s hope the fantasy lives up to reality.”
But some small businesses expressed concerns. Thera Wealth Management owner Philip Dragoumis questioned: “How will less stamp duty help first-time buyers when mortgage affordability is decreasing as interest rates go up?” while Joe Garner, managing director at property developer NewPlace said introducing an SDLT cut five weeks before the deadline for help-to-buy loans was “likely to see a mass surge of last-minute transactions, followed by a huge drop-off after the deadline ends”, adding: “It is irresponsible, populist politics that will likely see house prices increase further and decouple even more from income [and] is likely to be the final push on the pump that sees the housing price bubble burst.”
Other issues
Along with the removal of the cap on bankers’ bonuses – a move which Wildcat Law chartered wealth manager David Robinson called “beyond irresponsible; it’s as if everyone has forgotten why the restrictions were put in place: bonuses were found to be a contributing factor to the banks’ practices that directly led to the global financial crisis of 2008” – the chancellor also announced the planned increases in alcohol duty rates for beer, for cider, for wine, and for spirits will all be cancelled while an 18-month transitional measure for wine duty will be introduced, and draught relief will be extended to cover smaller kegs of 20 litres and above, to help smaller breweries.
Kwarteng’s ‘big tax giveaway’ came the day after the Bank of England announced a rise in interest rates to 2.25% to curb the current inflationary rate of 9.9%, as well as the government’s own 22 September launch of a new crackdown on fraud and money laundering to protect the UK economy – which Thomas Cattee, Gherson Solicitors’ head of white collar crime, noted would “give the SFO powers prior to opening an investigation in relation to a wider variety of offences”, such as offences other than bribery and corruption.
To the disappointment of some tax advisers, Kwarteng confirmed the Office of Tax Simplification would be wound down, saying “instead of a single arm’s-length body which is separate from the Treasury and HMRC [I have] mandated every one of my tax officials to focus on simplifying our tax code.”
Praise… and criticism
But while many business groups praised the Truss government’s tax giveaways, some expressed concerns. Rob Morgan, Charles Stanley chief investment analyst opined: “There is a startling lack of nuance or targeting in this mini-budget: energy, tax, and investment have been solved with simple sweeping measures.” Jamie Morrison, HW Fisher head of tax, cautioned: “We’re only six months on since the last Budget, and there have been numerous changes and back-peddling today. After years of overspending and nearly £50bn worth of unfunded tax cuts, the debt won’t magically disappear. Expect bigger changes and further u-turns in the next 12 months to address this.”
Wealth manager Dragoumis was more scathing: “This budget is fiscally reckless – it’s Trussmoronics not Trussonomics. There’s been no independent assessment or costing from the OBR. If you cut taxes while at the same time spending billions on energy subsidies, and just put the bill onto government borrowing, people will not spend their extra money because they know that the bill is coming further down the line. Extra government borrowing and higher bond yields crowd out growth. Markets will lose confidence in UK assets, bond yields will continue to rise and sterling will continue to fall.”
“This was a very aggressive tax-cutting budget from the new chancellor,” noted Scott Gallacher of chartered financial planner Rowley Turton. “In the short-term, taxpayers will welcome those tax cuts, given the cost-of-living crisis. The big question is whether these tax cuts will generate sufficient growth to offset the tax the chancellor has given up. It’s a big gamble from Kwarteng and, if it doesn’t come off, it’s one that we could all be paying for, for years to come. Fingers crossed he’s right.”
