The government’s unscheduled change of leadership has brought a new PM and a new cabinet. This includes a new Chancellor of the Exchequer, Kwasi Kwarteng. He has kickstarted his tenure with a new budget. It’s described as a mini-budget but has some significant content. Here are the key points you need to know.
The National Insurance increase has been revoked
This decision clearly signals a departure from Rishi Sunak’s approach. The former Chancellor was strongly in favour of the National Insurance increase. He considered it essential for putting the UK back on a fiscally sound footing after COVID19 (and Brexit). Sunak routinely defended the increase against those who criticised it as “a tax on jobs”.
Now, however, the opponents of the increase have clearly won the day. The National Insurance raise will be reversed on the 6th of November. This is perfect timing for anyone looking to get seasonal work (or extra hours) over the Festive period.
It may also help working adults to manage their finances throughout the cold season when people will have the greatest need for fuel. In fact, the Chancellor’s move can effectively be seen as a way to ease financial pressure on workers without raising benefits.
This is arguably especially pertinent given that the pound has recently fallen on the international currency markets. A weak pound makes imports more expensive and hence could well fuel inflation. A weak pound is good news for exporters and this could stimulate the UK’s economy. Ironically, however, this could also create inflationary pressures.
Income Tax will be reduced ahead of schedule
In one of his last moves as chancellor, Rishi Sunak pledged to reduce the base rate of Income Tax by 1p in the pound by the end of the current parliament (in 2024). His successor has brought this reduction forward to April 2023. He has also decided to abolish the 45%-band for Income Tax. Going forward, the highest band will be 40%.
Sadly, this will be too late for people aiming to boost their pay over Christmas. It will, however, at least give them something to look forward to come the spring. Again, these cuts may help people to cope if inflation continues to rise. It can either help them absorb the associated price increases or help them deal with any interest-rate increases it causes.
Corporation Tax will be kept as it is
The plan to raise Corporation Tax from 19% to 25% has been scrapped. Additionally, the plan to extend the reach of the IR35 tax reforms has been reversed. Both of these moves are good news for businesses. This means that they could potentially be good news for people in the labour market.
If businesses have more disposable income they may be less concerned about investing in projects that create extra work. This doesn’t necessarily mean that they will be taking on full-time, permanent employees.
It does, however, mean that they could be more open to taking on short-term and/or part-time staff or using agency workers. They might also be more open to hiring freelancers/contractors. This is therefore potentially good news for people dealing with debt as it means they could have less reason to fear being out of work.
The SDLT threshold has been raised
The SDLT (Stamp Duty) has been raised from £125K to £300K (or from £300K to £425K for first-time buyers). This could help to oil the wheels of the housing market without overheating it. If so, it could be good news for people dealing with debt.
In particular, it could make it easier for homeowners to sell and use the equity released to pay off their debts. It may also encourage investors to expand their portfolios and thus create more supply in the rental market.
