UK Market News

New chancellor Jeremy Hunt has reversed “almost all” of his predecessor’s tax changes, as he laid out how the government will repair three weeks of damage to the economy.

It follows the pound falling to a record low against the dollar, a 12-year high in mortgage rates and the Bank of England being forced to intervene to prevent a pension funds crisis following the biggest tax cuts in 50-years. It all culminated with now ex-chancellor Kwasi Kwarteng being fired on Friday.

From cuts in energy bill support to abandoning the 1p income tax cut, here’s what the announcements mean for you. 

1. Stamp Duty Cut

The government announced a permanent reduction in stamp duty – the tax you pay when you buy property or land in England and Northern Ireland. This policy change kicked in immediately on 23 September. It meant buyers would pay no tax on homes of up to £250,000 (up from £125,000) and first-time buyers would not have to pay any stamp duty on the first £425,000 of a property (up from £300,000). The value of the property on which first-time buyers can claim this relief also increased from £500,000 to £625,000.

This tax cut remains in place, meaning first-time buyers can save a maximum of £6,250 on the purchase of a home, while everybody else could save up to £2,500.

2. Income Tax Cuts

The ex-chancellor announced two major changes to income tax bands last month. Firstly, a planned cut to the basic rate of income tax was brought forward by a year. Under it, the amount of income tax you pay would fall by a penny – to 19p in every £1 from April 2023. It is currently 20p in every £1. This would also affect the amount of tax relief you can get on your pension.

Former chancellor Kwarteng also announced the government would also scrap the additional rate of income tax for workers who earn more than £150,000. These workers currently pay a 45% rate of income tax. The plan to abolish the 45% top rate was scrapped just 10 days later. Jeremy Hunt announced the plan to cut income tax by 1p – a flagship part of the 23 September mini-budget – will be called off indefinitely. 

3. National Insurance

The government confirmed plans to reverse the 1.25% rise in national insurance contributions. In April, national insurance contributions increased by 1.25% for both employees and employers. But this will be scrapped on 6 November. The increase in the national insurance threshold, which came into force in July, will remain the same. This policy is still going ahead.

4. Energy Bills

Standing charges and unit rates on domestic energy bills have been frozen until 2024. Businesses will also benefit, but only for six months, with targeted support thereafter. The government will offer loans to energy suppliers to keep rates at the current level – freezing the average household’s bill at around £2,500 a year, although it still marked a 27% increase on bills from 1 October.

Jeremy Hunt has announced that the Energy Price Guarantee will remain in place until April 2023 but said it cannot continue until after that point. He has launched a Treasury-led review into means-tested support for households and businesses after April.

5. Corporation Tax

Former chancellor Rishi Sunak announced in March 2021 that the rate of corporation tax was going up. It was due to rise from 19% to 25% in April 2023. But on 23 September, former Kwasi Kwarteng cancelled this increase, announcing that the tax would stay at 19% – in other words allowing companies to keep more of their profits.

On Friday, 14 October, following backlash, Liz Truss, reversed this decision in another huge U-turn. Corporation tax is paid to the government by limited UK companies and foreign companies with UK offices. It must be paid both on the company’s profits and on any gains from selling assets such as land, property or shares that have increased in value. Since 2015 there has been a single rate of corporation tax. Before then, there was a main rate and a lower rate for companies with profits under £300,000 a year. Raising it to 25% will bring in around £18 billion.

6. Tax Free Shopping

As part of its plan for growth, the government announced plans to reintroduce VAT-free shopping for international tourists last month. That meant visitors would be able to claim back the VAT paid on any items bought while visiting Britain – in other words tempting more people to travel to the UK. The policy came at a cost of £1.3 billion a year. This policy has now been reversed and will no longer go ahead.

Source: The Times