Kwasi Kwarteng, the new chancellor of the exchequer, is delivering a “mini-Budget” tomorrow, Friday 23 September, packed with a series of tax cuts that are expected to affect everything from National Insurance to stamp duty to banker’s bonuses.
Prime minister Liz Truss has already promised several tax cuts throughout her leadership campaign with the goal of boosting economic growth. Take a look at what you can expect from the announcement.
National Insurance cuts
Truss repeatedly promised throughout her campaign to reverse the 1.25% hike in National Insurance implemented by then-chancellor Rishi Sunak back in April. A statement from the treasury released today (22 September) has confirmed it ahead of the official mini-Budget announcement.
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The government will also cancel the planned health and social care levy, a separate tax which was expected to come into force April 2023. According to the government this will help nearly 28 million people across the country keep a larger portion of their salary.
The threshold at which workers begin to pay National Insurance, which was increased to £12,500 by Sunak after widespread calls for him to scrap the NI hike, is expected to remain the same.
A cut in stamp duty
There are also reports that suggest there are plans to also introduce a stamp duty holiday in order to stimulate the property market at a time of rising mortgage rates.
Stamp duty is a levy you pay when you purchase a property. You pay nothing on the first £125,000, 2% on the next £125,000, 5% on the next £675,000, 10% on the next £575,000 and 12% on anything above that.
First time buyers don’t pay stamp duty on the first £300,000 and then pay 5% on anything from £301,000 to £500,000.
However there are concerns it could do more harm than good.
Sarah Coles, personal finance expert at Hargreaves Lansdown, said: “Even if it does stimulate demand, it overlooks the fact that the real brakes on the property market is a severe shortage of supply. With an average of 36 properties on each agent’s books, we’re still close to an all-time low in the availability of property for sale. Driving demand without addressing supply would risk more buyers chasing a tiny number of properties, which would push prices up.
“By ramping up prices at a time of rising mortgage rates, the end result would be higher monthly mortgage costs, which would be increasingly unaffordable. And the Stamp Duty holiday wouldn’t help on this front. This in itself could be enough to put buyers off, and if it deters enough of them, it could end up having the opposite impact to the one that’s intended.”
The last time we saw a stamp duty holiday was during the pandemic in an attempt to boost economic growth — buyers paid no tax on the first £500,000 of a purchase. While this heated up the property market it also led to a mammoth increase in house prices.
However Truss believes the highest rate of stamp duty was preventing more transactions from taking place, so a source told The Times we can expect “radical” cuts to the levy. However, we think cuts to stamp duty aren’t enough. As my colleague Merryn Somerset Webb explains, we shouldn’t be cutting stamp duty, we should abolish stamp duty altogether.
Marriage tax allowance
Currently, married couples and those in civil partnerships are entitled to the marriage allowance, which lets one spouse or civil partner to transfer 10% (£1,250) of their personal allowance to the other, which means the latter pays less tax.
To be able to do so, either spouse has to earn below the personal allowance (£12,500) while the other has to pay income tax at the basic rate. This could lead to a £262 saving on income tax bill.
Kwarteng is expected to announce an extension to this tax relief by which couples could transfer their entire personal tax allowance to the other. This could save couples as much as £2,500, and would heavily benefit lower earners.
No increase to corporation tax and scrapping the cap on bankers’ bonuses
Truss has essentially confirmed she will not go ahead with the planned 1.25% increase in corporation tax, freezing it instead at 19%.
Kwarteng and Truss have also both proposed to scrap the cap on banker’s bonuses, which was introduced after the 2008 financial crisis to prevent bankers from making risky financial decisions to earn a higher bonus.
The aim is to help Britain “become more competitive” and to “help more investment flowing through the country”.
The pensions triple lock returns
The pensions triple lock was introduced in 2010 to guarantee that the state pension wouldn’t lose value in real terms and instead increase by the highest of average earnings, consumer price inflation, or 2.5%.
The government suspended the triple lock for 2022-2023 to avoid an increase to the state pension following the pandemic. Sunak confirmed the triple lock would return in 2023 and Truss has reiterated her commitment to the measure, even hinting at a 9%-10% increase in pensions next year.
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