With the first budget of Liz Truss’ term as Prime Minister falling mere weeks after she was elected to the role, there was naturally much speculation on what it would contain and how it would indicate what kind of leader she intends to be. Against the backdrop of the cost-of-living crisis and delivered the morning after the Bank of England raised its Base Rate yet again to 2.25%, expectations were naturally high.
The mini budget delivered this morning by Chancellor Kwasi Kwarteng is full to the brim of tax cuts in a bid to grow the economy. He has pledged to “turn the vicious cycle of stagnation into a virtuous cycle of growth”. In contrast, the Welsh Labour government said that the budget failed to provide “meaningful support for those struggling to pay their bills”.
It is certainly a dramatic budget full of big promises, and it will remain to be seen whether or not those gestures towards stimulating the economy come to fruition – these are not overnight fixes, and it will take time to see any benefits. But for now, here is a summary of the key points from the chancellor’s mini budget that are likely to affect you.
The basic rate of income tax has been cut from 20% to 19% starting from April 2022. Additionally, the higher tier of additional income tax – paid on incomes of over £150,000 at 45% – has been scrapped.
Over 1.2 million people in Wales are on the basic rate of income tax – on average, this cut amounts to an extra £170 per year. It’s a small gesture.
The rise in National Insurance that was announced earlier this year by Boris Johnson’s government has been cancelled, effective from November. In Wales, this will mean that around two million people will get a national insurance cut worth £235 a year.
Additionally, a planned rise to Corporation Tax from 19% to 25% has been scrapped. Increases to alcohol duty have also been cancelled.
There have been “permanent” cuts to stamp duty in England and Northern Ireland, however these cuts do not apply to Wales as our country operates on an equivalent system with a fixed threshold of £180,000. The UK government says that Welsh ministers will get £70m off the back of the changes in England and NI, but it’s up to the Welsh Labour government if it wants to follow the changes.
However, if you had been considering purchasing a second property in England or NI, or if your children or grandchildren are looking into buying their first home in these areas, then the cuts will benefit you.
- The stamp duty threshold has doubled. No stamp duty will be paid up to £250,000
- For first time buyers the threshold is now £425,000
These cuts are effective immediately.
The chancellor has said he would “look to work with” the Welsh and Scottish governments on setting up “investment zones”, which would offer “targeted and time limited tax cuts for business and liberalised planning rules to release more land for housing and commercial development”.
At the moment, there are no certainties in whether this will go ahead for Wales, as the Welsh government controls our planning policy.
Trusts and Investment Schemes
Venture Capital Trusts (VCTs), Enterprise Investment Schemes (EIS) and Seed Enterprise Investment Schemes (SEIS) were subject to a sunset closure in 2025 but have now been safeguarded. These schemes have felt by some to have been enormously successful in supporting equity investment into British small businesses, helping them achieve their ambitions and fuelling the economy.
There has been nothing new in the chancellor’s budget about energy bills. However, Kwarteng did restate the commitment to freezing energy bills for the average household. The energy rescue scheme caps household bills for two years, with an equivalent freeze in place for businesses for the next six months.
In real terms, this freezes household bills at an average of £2,500 a year from October. While this is still a large increase on what you may have been paying, it is better than the alternative.
This is a good time to check your finances are working as hard as they can, and that you’re making the most of all the available allowances and tax-efficient opportunities available.
Contact us if you’d like a review of your financial situation.