As part of the government’s Growth Plan, Chancellor Kwasi Kwarteng has announced a series of measures that claim to facilitate growth across the UK economy and support households struggling with the rising cost-of-living.
These changes have been met with wide-spread criticism with money, housing and stock markets all reacting adversely to the announcement. There have been calls within the House of Commons by Tory MPs for Kwarteng to resign or ‘face mutiny’ following the latest update and the Bank of England have had to make emergency interventions as pension funds buckle (The Guardian).
So, what are the key changes from the mini-budget 2022 and how do these impact you?
Income tax rates
The basic rate of income tax will be reduced from 20% to 19% from April 2023; replacing previous plans for the introduction in April 2024. The early delivery of these plans is set to benefit around 31 million people, who will save an average of £170 per year in the 2023-24 tax year (GOV.UK).
Although this change provides welcomed support to a vast number of people, Kwarteng also announced a withdrawal of the 45% tax rate for individuals earning over £150,000; capping the higher rate of income tax (40%) at anything earned over £50,270. In offering the very high earners of the UK tax cuts, alongside access to the £500 Personal Savings Allowance, the latest updates to the budget have been criticised as striving to support those most well off as the UK economy continues to struggle under a cost-of-living crisis.
Adding even more fuel to the fire, Kwarteng announced no change to the previous plans announced by Rishi Sunak in relation to personal tax thresholds. In the 2021 budget, Sunak froze personal tax thresholds; placing more low-income households on the basic rate and those with earnings over £50,000 on the higher 40% rate. Dubbed as a “stealth tax” on UK workers; the rates are set to freeze until 2025-2026 and are predicted to raise a whopping £21 billion for the Treasury at a time where wage inflation is at its highest (The Guardian).
National Insurance reversal
At the beginning of the 2022 tax year, the UK saw the rates of NI contributions increase by 1.25% and the planned introduction of the Health and Social Care levy in April 2023. In order to support households struggling with rising utility bills and other costs, the chancellor has now announced the reversal of the 1.25% increase as of 6 November 2022, alongside the termination of the planned levy.
Although the government, claim these changes will benefit the average UK worker by £330 per year (GOV.UK), it would appear that high earners will once again feel the impacts of this change more substantially.
For a person earning £20,000 annually, there will be a saving of £93 a year however, for someone earning £100,000 annually they will save around £1,093 a year (GOV.UK). Although the reversal of the national insurance increase will benefit a large proportion of UK workers, it has been criticised for its inability to support lower-income households who have been impacted the most by the steep rise in inflation.
Energy price cap
In July 2022, the government announced plans to introduce a £37 million Cost of Living Support package to provide support to low-income households struggling with the rising cost-of-living. This included an Energy Bills Support Scheme where households would be provided with a £400 non-repayable discount payment on their energy bills this winter.
As a part of the mini-budget, The Chancellor confirmed that this discount payment and planned energy price cap will go ahead from October 2022. With this in mind, a typical household in the UK will pay no more than £2,500 in energy bills for the next two years; something hugely significant considering energy bills were due to rise to up to £3,549 per year from October 2022, and rise again in January 2023 (GOV.UK).
However, with the average household energy bill in 2020 averaging at £1411, many people are seeing upwards of £100 a month in increase to their bills.
The government have also confirmed that further funding will be available from Autumn 2022 to provide the equivalent support of £400 for energy bills for the 1% of households who do not qualify for the Energy Bills Support Scheme. For example, those that have a domestic electricity meter or a direct relationship with an energy supplier, such as park home residents.
In an attempt to encourage growth of the economy in England and Northern Ireland, The Chancellor has raised the threshold at which stamp duty must be paid from £125,000 to £250,000 and from £300,000 to £425,000 for first-time buyers. Under the new system, the first £250,000 of a property’s value will be exempt from stamp duty and buyers will pay 5% of the value of the home from £250,001, in comparison to portions between £925,001 and £1.5m which will continue to be taxed at 10% (and any higher at 12%). In making this decision, the government hope to encourage the 200,000 buyers avoiding stamp duty costs altogether to progress on the property-ladder (The Guardian).
Although the changes come as welcome news for those in a secure financial position to buy, critics have voiced concerns that the changes fail to consider the current housing shortage and the unforeseen consequence of the Bank of England base rate rise. With 41% of mortgage products already being taken off the market (at the time of writing), buyers are unable to secure the loans required in order to buy properties, leaving those on lower incomes ineligible and unable to afford.
With interest rates rising and prices increasing by over 50% in the last decade, Ian Mulheirn, chief economist at the Tony Blair Institute for Global Change suggests it’s “not exotic to think you could see real house prices fall a third in the long term…people coming to the end of their mortgage deals are facing a fairly awful set of options”.
A controversial discussion surrounds the reform to the Universal Credit (UC) conditions in which claimants will be required to secure more or better paid work.
With the government set to raise the Administrative Earnings Threshold, claimants who are in work and/or are on lower earnings, will be subject to more intensive conditions in order to receive both financial support and coaching.
With new clear work expectations set, this change is supposedly curated to provide more support to those over 50 and offer claimants the best possible chance to be financially independent from Universal Credit.
Off-payroll working reforms will be repealed from 6 April 2023, meaning that workers across the UK providing their services via an intermediary, such as a personal service company, will once again be responsible for determining their employment status and paying the appropriate amount of tax and national insurance contributions. This is a huge shock to the sector, and Bar2 will be commenting further on this matter in due course.
For further information on the mini-budget 2022 changes and how these impact you, you can visit the Standard Life website.