New Chancellor reverses almost all of Kwasi Kwarteng's mini-budget tax measures
Last Friday, Jeremy Hunt’s first act as the new Chancellor of the Exchequer was to reverse the principal tax cutting measure of Kwasi Kwarteng’s ill-fated “Growth Plan” of 23 September by reinstating the increase to Corporation Tax from 19% to 25%, to take effect from April 2023, announced originally as long ago as the Spring Budget of 2021 by Rishi Sunak, incredibly the first of four to hold this office in the current year.
Today, in an Emergency Statement, clearly occasioned by government anxiety about what the markets might do between now and 31 October, when the Medium-Term Fiscal Plan will be presented, Hunt has gone further and effectively shredded the rest of what his immediate predecessor sought to do less than a month ago. To quote the Chancellor, he announced “a reversal of almost all of the tax measures set out in the Growth Plan that have not been legislated for in parliament”.
Measures which remain in place are:
- The 1.25% reversal to National Insurance, taking effect from 6 November.
- The cut to Stamp Duty Land Tax (SDLT) for residential properties, which took effect from 23 September.
- The limit for Annual Investment Allowance which will remain at £1 million from April 2023 (it had been due to reduce to £200,000).
- Enhancements to the Seed Enterprise Investment Scheme and an extension to the Company Share Option Plan rules.
The tax measures which have been reversed, including those announced before today, are as follows:
- The abolition of the additional rate of income tax from 45% to 40% from April 2023 (announced 3 October). The additional rate of 45% remains for 2023/24.
- The reduction of corporation tax from 25% to 19% from April 2023 (announced 14 October). The increase to 25% remains for 2023/24.
- The reduction of the basic rate of income tax from 20% to 19%. Kwasi Kwarteng had brought forward Rishi Sunak’s promise to do this from April 2024 to April 2023. But this will now not proceed at all, and the basic rate of income tax will therefore remain at 20% “indefinitely”.
- The reduction in dividend tax by 1.25% from April 2023. The existing rates of 8.75%, 33.75% and 39.35% for the current year will remain in place for 2023/24.
- The repeal of the 2017 and 2021 reforms to the rules for off-payroll working (known generally as IR35).
- The introduction of a new VAT-free shopping scheme for non-UK visitors to Great Britain.
- The freezing of rates for alcohol duty from February 2023.
In total, it is estimated that these changes will result in annual savings of approximately £32 billion, which will go some way to filling the hole in the Government’s finances, although how much will not be clear until we hear from the Office for Budget Responsibility on 31 October.
In addition, the Chancellor announced that the Energy Price Guarantee and the Energy Bill Relief Scheme, which were previously to be in place for two years, will now not continue in their present form beyond April 2023. Instead, there will be a Treasury led review before that date to consider how to support households and businesses with energy bills after April 2023, the objective being to design a new approach that, to quote the Treasury, “will cost the taxpayer significantly less than planned whilst ensuring enough support for those in need.”
Nor it is evident is this the end. Between now and the end of the month, all government departments will be asked to find efficiencies within their budgets and in the House of Commons the Chancellor admitted that “many difficult decisions will be announced” on 31 October. In other words, there are further cuts in public spending and further rises in tax to come in a fortnight on Halloween.
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