“You’re joking. Not another one?” Many will remember this was the response of Brenda from Bristol on the news that the then Prime Minister Theresa May had announced a snap general election in 2017.
Brenda’s reaction to today’s news may well have been the same, but events since Kwasi Kwarteng’s mini-budget of 23 September 2022 have been no joke for the present Government or for the standing of the British economy, not to mention many members of the Great British public.
Less than two weeks after he announced the reversal of the abolition of the 45% income tax rate, Kwasi Kwarteng is no longer Chancellor and Prime Minister Liz Truss has stated that the corporation tax increases planned for next April 2023, which were scrapped only three weeks ago in the mini-budget of 23 September, will now go ahead after all.
While for now the rate of corporation tax remains at 19%, from 1 April 2023, it would seem companies will be back to where they were at the time of the 2021 Spring Budget delivered by then Chancellor Rishi Sunak. Assuming no changes to what was then proposed, the rate will then increase to 25% for companies with profits over £250,000, while the 19% rate will remain as a small profits rate payable by companies with profits of £50,000 or less. Companies with profits between £50,001 and £250,000 will pay tax at the main rate reduced by a marginal relief, providing a gradual increase in the effective corporation tax rate.
Furthermore, in applying those profit thresholds the number of companies under common ownership will need to be taken into account; all very reminiscent of where companies were back before 2015, under Chancellor George Osborne, except that then the threshold for the small companies rate was actually £300,000, rather than £50,000.
This latest about turn will apparently cover in the region of £18 billion of the £43 billion unfunded tax cuts (reduced from the original £45 billion by the abolition of the 45% tax rate cut) which originally spooked the markets along with the absence of a simultaneous OBR forecast.
But this still leaves new Chancellor Jeremy Hunt with a lot of work to do between now and 31 October, when the Medium Term Fiscal Plan is due to be presented – always assuming that date, having changed once already, does not change again!