New Chancellor has taken the axe to taxes in a bid to boost households budgets and the economy. Here's what today's announcements mean for your pocket.
Kwasi Kwarteng, the Chancellor of the Exchequer, has delivered his first big statement to the House of Commons in his new role.
The Government was keen to suggest this wasn’t a full Budget, since it didn’t include independent economic forecasts from the Office for Budget Responsibility, describing it instead as a ‘fiscal event’.
However, there were more significant announcements contained within it than many recent Budgets.
Here’s what Kwarteng had to say, and what the 'mini Budget' means for the money in your pocket.
National Insurance
One change that we knew about in advance of the speech was the reversal of the National Insurance hike which occurred back in April.
Rates were increased for everyone by 1.25% ‒ alongside an identical increase in dividend tax to ensure that company directors could not avoid the hike ‒ with the aim of raising funds for the NHS and social care.
By July, the Government had somewhat backtracked by increasing the threshold at which you start paying National Insurance to bring it in line with the Income Tax personal allowance, but now the new administration is dumping the rate increase altogether.
The change will take place from 6th November ‒ earlier than anticipated ‒ though it does mean that the National Insurance regime has changed three times within a little over half a year, which is somewhat farcical.
Ultimately, the difference to your pay packet will depend on what you earn, but someone earning £20,000 a year will save £93, while if you get paid £40,000 then you’ll get to keep an additional £343 a year.
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Stamp Duty
Another change that was flagged in advance was to the Stamp Duty regime.
Stamp Duty is a tax paid when you purchase a property, with the tax bands increasing along with the value of the property.
Previously you would pay no Stamp Duty on the first £125,000 of a property purchase, but that’s being doubled to £250,000.
Kwarteng also tweaked the Stamp Duty regime for first-time buyers, who benefit from a higher threshold.
Previously, if you were purchasing your first home, no Stamp Duty would be charged on the first £300,000 of the transaction. This is being hiked though, to £425,000.
This special help for first-time buyers was previously limited to properties valued up to £500,000, but that cap is now rising to £625,000.
It’s not the first time that the Government has rejigged the Stamp Duty regime in recent years. During the pandemic, a temporary holiday was introduced, meaning no Stamp Duty was paid on the first £500,000 of any property transaction.
Lowering the Stamp Duty payable on property purchases sparks demand, which has the added impact of increasing house prices.
For example, according to the latest data from the average property in July stood at £292,000, compared to £232,684 back at the start of the pandemic.
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Income Tax
A huge change for higher earners came from the scrapping of the additional rate of Income Tax.
Previously, a 45% rate was charged on income above £150,000.
Kwarteng also announced that the basic rate of Income Tax will drop to 19% ‒ 1p in the £1 ‒ from next April.
According to the Treasury, the move will mean that around 31 million people will be better off by an average of £170 a year.
Energy bills
Kwarteng reiterated the importance of the energy price guarantee, which will freeze the unit costs we pay for gas and electricity for the next two years.
It means that the typical household will pay around £2,500, though it’s important to bear in mind that the size of your eventual bill will depend entirely on how much you actually use.
It follows the announcement this week of separate support for businesses, alongside the energy price guarantee which is in place only for households.
Building new homes
It was something of a throwaway line in the speech, but the Chancellor said that the Government will increase its disposal of publicly-owned land.
The idea is that it can then be turned into new housing in order to meet ever-increasing demand.
Previous administrations have pledged to dramatically ramp up the number of new homes produced each year, with the current target of 300,000 new homes a year. However, it has not yet managed to match its own targets.
Bankers' bonus cap
Another heavily trailed move was the removal of the cap on bankers’ bonuses. Kwarteng argued that the cap had not succeeded in limiting remuneration for bankers and only pushed banks into setting up in other financial centres.
Investment zones
The Chancellor confirmed that the Government wants to proceed with the ‘investment zone’ idea, stating it is in discussions with 38 potential sites for these zones.
Businesses that set up in these areas will face very little taxes, for example no Stamp Duty on the land they purchase for their premises, nor any National Insurance on the first £50,000 earned by any new employee hired to work in the zone.
Tax on booze
There was some good news for drinkers from the ‘Budget that’s not a Budget’, also.
A host of tax increases on various alcohol products, like beer, wine and spirits, had been due to kick in from February next year.
That increase has been ditched entirely, while the Chancellor has pledged to consult on reforms to the way that alcohol duties are calculated in future.