Mini-Budget 2022: The Major Reversal

The Biggest Tax Cut in Generations Just Happened (and Then Didn’t)

Although it was announced no less than a month ago, in an extraordinary twist of events, the mini-budget is to be (almost) entirely reversed.

Jeremy Hunt, who replaced Kwasi Kwarteng as the Chancellor of the Exchequer, understands that fiscal credibility is hard won but easily lost. Having stepped aboard Liz Truss’ Government, he delivered a statement on 17 October, declaring:

“We will reverse almost all the tax measures announced in the Growth Plan three weeks ago that had not started parliamentary legislation.”

The Chancellor confirmed almost all the proposed tax cuts measures of the 23 September mini-budget (Growth Plan) had been axed. That is, provided they have not started parliamentary legislation. The only actions to remain in place are abolishing the health and safety social care levy and changing the stamp duty. He insisted the reversal measures would help the government raise around £32 billion annually.

We’ve rounded up everything you need to know below.

INCOME TAX — BASIC RATE
AnnouncedAmended
To save 31 million people £170 a year, from April 2023, the government will cut basic tax rates to 19%The basic rate of income tax will remain at 20%
Those in England, Wales and Northern Ireland to pay 20% on annual earnings between £12,571 to £50,270  (Scottish rates differ)Hunt has declared that cutting the basic rate has been put on hold “indefinitely”
Basic rates were due to be cut in 2024, but Kwarteng brought this forward
INCOME TAX — HIGHER RATE
AnnouncedAmended
Taxpayers in England, Wales and Northern Ireland will have the 45% rate of income tax for earnings over £150,000 abolishedTruss’ government had already reversed the cut to the higher rate, rendering it a moot point
In its stead, there will be one single higher rate of income tax of 40% —commencing April 2023
CORPORATION TAX
AnnouncedAmended
Due April 2023, Kwarteng cancelled the UK-wide planned increase of 19% to 25% corporation taxMs Truss already announced that UK corporation tax would go up from 19% to 25% in April 2023 after all
ENERGY BILLS
AnnouncedAmended
Announced before the mini-budget, a typical household using both gas and electricity would purportedly pay £2,500 annually for two yearsThe government’s energy price guarantee now only covers winter and will be in place until April 2023
A Treasury-led review will look at what measures should be put in place after April 2023
IR35 RULES
AnnouncedAmended
The government had promised that companies were no longer responsible for ensuring their off-payroll contractors were paying the right amount of taxGiven that this reform would have cost £2bn a year, the government has elected that this reform will no longer pass
They cited the current system created “unnecessary complexity and cost” for businesses

Mini-Budget Reversal: Has Anything Else Been Cancelled?

Other measures that have been cancelled include:

– Due to costing £2bn, VAT-free shopping for overseas visitors is no longer going ahead
– Due to costing £600m, a freeze on alcohol duty is also no longer going into action
– To save £1bn, cuts to the tax paid on shareholders’ dividends will stay in place

Mini-Budget Reversal: Are Any Measures Staying?

Measures announced in the mini-budget to remain include:

National Insurance

– There will no longer be a rise in National Insurance (NI) from 6 November
– Workers and employers have paid an extra 1.25p in the pound since April
– New Health and Social Care Levy to pay for the NHS will not be introduced

Stamp Duty

– Cut to stamp duty for those buying a property in England and Northern Ireland
– No stamp duty on first £250,000 and for first time buyers that rises to £425,000
– 200,000 more people will no longer have to consider paying stamp duty altogether

Benefits

– Universal Credit rules tightened and around 120,000 people asked to seek work
– Otherwise, benefits are to be reduced should such job search commitments be unfulfilled
– Jobseekers over 50 to be given extra time with work coaches to help return to job market

Bankers’ Bonuses

– Rules which limit bankers’ bonuses to twice their fixed salary to be scrapped
– Package of regulatory reforms to be set out later in the autumn

Mini-budget reversal: What you need to know

  • SCRAPPED: CORPORATION TAX — Cancelled rise from 19% to 25%
  • SCRAPPED: INCOME TAX — Removal of 45% top rate for high earners
  • SCRAPPED: INCOME TAX — Cut basic rate by 1p to 19p
  • SCRAPPED: ALCOHOL DUTY — Froze rates
  • SCRAPPED: VAT — Tax-free shopping for non-UK visitors
  • RETAINED: NATIONAL INSURANCE — Reversing 1.25% rise
  • RETAINED: STAMP DUTY — No duty on first £250,000 of property’s value
  • RETAINED: FIRST-TIME BUYERS — No duty on first £425,000 of property’s value

⬜ | The reversal took place 3rd October
⬜ | Changes to income tax do not apply in Scotland
⬜ | Changes to stamp duty apply in England and Northern Ireland only

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