Every Announcement In Kwasi Kwarteng’s Not-So-Mini-Budget Explained
As well as widely-expected tax cuts the Chancellor Kwasi Kwarteng unveiled a host of other measures in his mini-Budget today (Alamy)
The Chancellor Kwasi Kwarteng unveiled dozens of new measures in his mini-Budget statement to Parliament today, from tax cuts to benefit changes and bankers’ bonuses as he ripped up the economic rulebook used by previous Conservative administrations.
He also set out how much the enormous energy support packages will cost the Treasury, but there was no official OBR forecast to go with the announcements.
Here are the key points from the fiscal update as the government tries to kickstart growth:
Top Rate Of Income Tax Scrapped
Plenty of policies had been trailed or leaked out ahead of today’s statement, but Kwarteng managed to keep one rabbit in the hat, and finished his speech in the Commons by announcing the top level of income tax – the 45 per cent rate for earnings over £150,000 – is being abolished altogether from next April.
The Treasury estimates the policy, which affects almost 700,000 people, will save them on average £10,000 a year, although it will not cost that much in revenue due to expected behavioural changes.
Kwarteng also announced a planned 1p cut in the lower 20 per cent rate of income tax would be brought forward by a year, and would see 31 million people keeping on average £170 more of their wages per year.
Tom Evennett from Ernst & Young said: “The Chancellor’s aim with these announcements is to leave more money in people’s pockets with the intention of driving economic growth.
“This could be considered the start of a new era - with the Chancellor hoping it is a golden one – but only time will tell as to whether these measures do drive the growth the government is hoping for.”
John O’Connell, chief executive of the TaxPayers' Alliance, said: “A cut in the basic rate of income tax is something we have long campaigned for and will be welcomed by one and all.
“Putting cash back in the pockets of working taxpayers is a boon to household finances and will help the push for economic growth.
But Mark Russell, chief executive at The Children’s Society, said: “Changes to the tax system right now are barking up the wrong tree.
"Spending billions in handouts to benefit those on the highest incomes but failing miserably to meet the needs of families on the lowest incomes who will still be struggling to heat their homes this winter.”
Growth, Growth, Growth
The government wants a new approach to growth, Kwarteng said, with the aim "over the medium term” to reach a trend rate of growth of 2.5%.
“Growth is not as high as it should be. This has made it harder to pay for public services, requiring taxes to rise,” he said, adding that “none of this is going to happen overnight”.
But in order to do this the Treasury will rip up its fiscal rules that say the national debt should be falling by 2024/25 to instead focus on borrowing for growth.
The UK’s Debt Management Office has confirmed there will need to be another £72.4bn of extra borrowing this year, bringing total borrowing to £234bn.
It will be funded through additional gilt sales of £62.4bn and net Treasury bill sales of £10bn, but analysts say this will also drive up the cost of government borrowing as investors demand a higher rate of return.
Ed Monk, associate director at Fidelity International, said: “The government is betting that an historically large package of tax cuts can jolt the UK economy into a higher rate of long-term growth.
“And that growth will be needed if the Chancellor hopes to balance the books because the plans announced today require a substantial increase in borrowing.”
He added: “In the meantime, financial markets will be ready to hand down their verdict on the Chancellor’s plans. The pound is already at low levels versus other currencies and yields on government bonds have been rising.
"That ups the stakes for the government because a weak pound means the UK importing inflation from overseas, while higher yields on gilts make it more expensive for the government to borrow in the first place.”
In a major change to benefit rules, Kwarteng announced plans to slash people's benefits if they fail to "fulfil their job commitments" as he said there were more job vacancies than unemployed people.
Currently, if you’re on Universal Credit, a “light-touch" job search kicks in once you work more than nine hours a week on the national living wage, but it will rise to 12 hours from Monday, and today’s announcement will see it at 15 hours a week in January, affecting another 120,000 people, who’ll have their benefits sanctioned if they don’t follow the new rules.
Kwarteng said: “with more vacancies than unemployed people to fill them, we need to encourage more people to join the labour market.”
But Alfie Stirling, chief economist at the New Economics Foundation, said: “Today’s reforms to universal credit are a punitive aggravation of existing design flaws. If we make it harder for people to reject jobs with poverty-pay, we will get the poor quality, poorly paid and insecure jobs market we have asked for.”
Neil Carberry from the Recruitment & Employment Confederation said its members “remain unconvinced that benefit sanctions can do the job” of tackling rising economic inactivity.
“There is no point forcing someone to an interview they are unprepared for,” he added.
Stamp Duty Cuts
Kwarteng told the Commons "homeownership is the most common route for people to own an asset, giving them a stake in the success of our economy and society”, and confirmed plans to slash Stamp Duty from this Friday.
Under the new policy no tax will be paid on the first £250,000 of any property purchase, double the current floor of £125,000. Meanwhile for first time buyers, the threshold is going from £300,000 to £425,000 - but only if the property is worth less than £625,000.
Around 200,000 more people every year will be lifted out of paying stamp duty at all, the Government calculated.
A previous stamp duty holiday, introduced by former chancellor Rishi Sunak, saw house prices hit a string of record highs.
Sarah Coles, senior personal finance analyst at Hargreaves Lansdown said this permanent cut was “a welcome change” for buyers in a tough market, but added: "However, there's every chance that the change doesn't drain the toxic cocktail, it just remixes it.
"A shortage of buyers isn't the biggest problem facing the property market right now, the real brake on the property market is a severe shortage of supply.”
Brian Murphy, head of lending at Mortgage Advice Bureau, said: "It hasn't been long since we last had a stamp duty break, and these things tend to generate momentum that causes a flurry of activity followed by a period of slowdown.
"However, the permanency of today's announcement may temper a sudden surge of activity and allow some control of the UK property market to be regained.
"Still, the crux of the issue is that any changes in stamp duty will not address the main problem right now: a significant supply shortage.”
Lucian Cook, head of residential research at Savills, said: "The biggest beneficiaries of the stamp duty changes are likely to be first-time buyers in London and the more expensive parts of South East England, where the savings on offer will make their deposit requirements look a little less daunting.
"However, given a combination of recent house price growth and increases in interest rate raises this is not going to magically result in a surge of first-time buyer home buying activity.”
The was echoed by Centre for London chief executive Nick Bowes, who said: “London’s overheated housing market is already a problem for Londoners. While a stamp duty cut might initially help some with the cost of buying a home, London’s problem is not a shortage of demand, but a shortage of supply.
“For decades not enough homes have been built. Failing to boost supply risks prices surging even higher and quickly swallowing any benefit from reductions in stamp duty.
Planning, Infrastructure And Investment
The Chancellor promised a "new Bill to unpick the complex patchwork of planning restrictions" and to streamline and speed up decision making.
He confirmed the government's plans for 38 new low-tax "investment zones” around the country, that will allow planning rules to be relaxed and will reduce business taxes to encourage investment.
A list of 138 infrastructure projects prioritised for development in sectors like housing, energy and telecoms was published alongside today’s statement, including 86 road improvements, Northern Powerhouse Rail, and Hinkley Point C and Sizewell C power stations.
The Chancellor also announced that he will support homebuyers by increasing the disposal of surplus government land to build new homes, increasing supply.
As a result Britain’s biggest developers have seen share price rises, with Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, saying "Housebuilders have been clad with a rosy glow on the markets today, after the stamp duty cut confirmation and the prospect of more acquiescent planning departments on the other.
"But these measures are not likely to help stave off a correction in prices indefinitely.
"There is the potential that changing the criteria for new developments, allowing companies to build fewer low-cost units, could push up overall house prices even further, with more high-end homes likely to be built.”
But Stuart Law, chief executive of the Assetz Group of property and financial services companies, said: "The only way to truly support the housing market long term is to stimulate supply so it better balances demand, with affordability as the natural outcome.
"In that sense, the proposals announced by the government to reform the planning system are exactly what's needed, just not in tandem with a huge demand stimulus at a time when it is already impossible for the housing sector to keep up with demand at its current level."
Energy Bill Cap Costs
Kwarteng began his statement by saying "help is coming" for people with their energy bills, reconfirming that the energy price guarantee will limit bills for the average household to £2,500, while businesses will get help as their bills soar due to the wholesale cost of gas.
So far the government has not said how much this support would cost, but the Chancellor gave the first indication, saying it will cost £60bn for the first six months alone.
"The heavy price of inaction would have been far greater than the cost of these schemes,” he said.
The costs beyond that are dependent on what happens to volatile wholesale prices in the coming months.
The government will legislate to put new conditions on unions wanting to strike, Kwarteng confirmed, forcing workers to provide a "minimum service level" if they walk out in critical sectors like the railways.
He also said the government will "legislate to require unions to put pay offers to a member vote to ensure strikes can only be called once negotiations have genuinely broken down.”
Shortly after Kwarteng made his comments, the Transport Salaried Staffs Association (TSSA) and Unite announced fresh strikes in a long-running rail dispute over jobs, pay and conditions.
All the major rail unions are now taking strike action on October 1, threatening a complete shutdown of the network for the first time since the row flared earlier in the year.
Manuel Cortes, general secretary of the TSSA, said: "Unions are democratic organisations and industrial action only occurs as a last resort and after a postal ballot of members which also includes having to meet undemocratic thresholds.
"Frankly, having to ballot our members on pay offers before they can take industrial action will not make a blind bit of difference.
"If the offer is rubbish, it will still be rubbish whether our elected workplace reps have consulted our members on it or a ballot has taken place.
"This new Tory proposal will serve only to elongate disputes and generate greater anger among union members. It will do precisely nothing to encourage employers to come to the negotiating table with realistic offers."
Mick Lynch, general secretary of the RMT union, said: "We already have the most severe anti-democratic trade union laws in western Europe and this latest threat will rightly enrage our members.
"The government should be working towards a negotiated settlement in the national rail dispute, not seeking to make it even harder to take effective strike action.”
Kwarteng confirmed plans to get rid of the cap on bankers' bonuses and, to reaffirm the UK's status as “the world's financial services centre”.
The cap, brought in after the 2008 financial crash, meant bosses are not allowed to award more than twice an employee's salary, but the Chancellor claimed: “All the bonus cap did was push up the basic salaries of bakers or drive activity outside Europe.
"It never capped total remuneration so let’s not sit here and pretend otherwise. We are going to get rid of it.”
But Michael Barnett, a partner at Quillon Law and who led litigation involving high-profile banking scandals following the 2008 crisis, warned the decision risks re-introducing a culture of greed that led to the crash.
"To many who were scarred by the consequences of the 2008 global financial crisis and the banking scandals that accompanied it, news that caps on bankers' bonuses may be abolished will trigger a response bordering on visceral,” he said.
"Bankers' bonuses were seen as emblematic of an imploding financial services industry that was fuelled by a culture based on greed and pursuit of profit at any cost.”
But Richard Milnes, UK Banking Partner at Ernst & Young, said scrapping the bonus cap “sends a strong signal that the UK is a competitive global market to work or operate in”.
As well as income tax changes Kwarteng confirmed the widely-expected scrapping of the Health and Social Care Levy and the associated increase in National Insurance contributions brought in this year.
National Insurance will be cut from November 6, with the tax on earnings over £12,570 a year dropping back from 13.25 per cent to 12 per cent, with the government saying 28 million people across the UK will keep an extra £330 a year each, on average, in 2023-24.
But it does help those well-off by much more - with those earning £20,000 a year an extra £93 compared to £468 a year for those on £50,000 salaries.
It was welcomed by Martin McTague from the Federation of Small Businesses, which has been campaigning for the policy to be reversed, but Sam Tims from the New Economics Foundation said while the levy was “not perfect” the decision to remove it will “increase the burden on low-income households and the NHS even further this winter”.
The Chancellor’s statement confirmed Liz Truss’s pledge to cancel a planned rise in corporation tax from 19% to 25% in April 2023, which was due to bring in more than £17bn a year for the public finances by 2025.
But Kwarteng said as a result the UK "will have the lowest rate of corporation tax in the G20”, which the government hoped will bring in further global investment.
He also outlined his desire to make the tax system "simpler" and said he would "wind down" the Office of Tax Simplification.
In response Torsten Bell from the Resolution Foundation think tank said the tax cuts announced by the Chancellor would overwhelmingly benefit the better-off.
"The tax cuts are heavily focused on the very highest-income households. 45% of the gains next year will go to the top 5%. Somebody who earns £1 million will see a £55,000 tax cut," he told Sky News.
Bell added: "In the medium term, the Bank of England will raise [interest] rates to squeeze out any extra growth that government's fiscal support offers, so I don't think we should assume on the demand side you see any lasting effect on growth.
"In the end, you need to focus far more widely than tax if you want to see this economy growing."
The planned alcohol duty rises for next year will be cancelled as well as the associated reforms set out earlier this year.
Kwarteng said: "Our drive to modernise also extends to alcohol duties. I have listened to industry concerns about the ongoing reforms. I will therefore introduce an 18-month transitional measure for wine duty.
"I will also extend draught relief to cover smaller kegs of 20 litres and above, to help smaller breweries. And, at this difficult time, we are not going to let alcohol duty rates rise in line with RPI.
"So I can announce that the planned increases in the duty rates for beer, for cider, for wine, and for spirits will all be cancelled.”
Accountancy firm Moore UK responded by saying: "On average, this will save the consumer 7p on a pint of beer, 4p on a pint of cider, 38p on a bottle of wine, and £1.35 on a bottle of spirits."
McTague welcomed the move, saying ‘the complexity of the planned changes to alcohol duty announced earlier this year would have meant that small retailers would have had to calculate many different levels of duty based on alcohol levels, which would be very challenging to administer and properly account for”.
But Steve Alton, CEO of the British Institute of Innkeeping said today’s announcement “does not address the vulnerability of our members’ pubs in every community”, saying while the energy price guarantee is welcome the hospitality industry wanted to see further measures to help with rising costs such as business rates relief.
The Chancellor also said today that VAT-free shopping would be introduced for overseas visitors, which was welcomed by tourism industry group UKinbound.
Their CEO Joss Croft said: “This is a significant win for Britain PLC that will drive growth, provide a boost to high streets across the country, and lay the ground work for the UK to become an international shopping hub, driving tourism and export earnings into the UK.”
More To Come
Kwarteng announced that not only would a full fiscal approach be set out in the future, the Office for Budget Responsibility will publish an economic and fiscal forecast before the end of the year, after criticism from analysts and even his own MPs that one had not been requested to go alongside today’s statement.
The Chancellor also said he would "accelerate reforms" to the pension charge cap, so it will no longer apply to "well-designed performance fees”, and promised announcements in the coming weeks that will cover "the planning system, business regulations, childcare, immigration, agricultural productivity and digital infrastructure”.
The response has been mixed at best, with question marks over whether the plans will actually lead to the growth needed to pay for the various tax cuts and spending plans.
Miatta Fahnbulleh, chief executive of the New Economics Foundation, said: “This mini-budget was totally divorced from reality.
“The chancellor has announced a massive transfer of income to the wealthy in the height of the cost of living scandal when millions on low and modest incomes are being hammered.
“Tax cuts that disproportionately benefit the rich don’t help the people who need it the most and rob our creaking public services of the investment they desperately need.”
The Royal College of Nursing has described the event as one that gave "billions to bankers and nothing to nurses".
Garry White, Chief Investment Commentator at Charles Stanley, said “Global investors failed to be impressed by Kwasi Kwarteng’s ‘great growth gamble’.
“British shares fell, UK gilt yields surged to almost 4%, and the pound hit a 37-year low against the dollar.”
Paul Johnson, director of the Institute for Fiscal Studies, tweeted: “£45 billion of tax cuts. This is biggest tax cutting event since 1972. Barber's "dash for growth" then ended in disaster.
“That Budget is now known as the worst of modern times. Genuinely, I hope this one works very much better.”
That was echoed by Martin Lewis, founder of moneysavingexpert, who said: “That really was quite a staggering statement from a Conservative party government. Huge new borrowing at the same time as cutting taxes.
“It's all aimed at growing the economy. I really hope it works. I really worry what happens if it doesn’t.”
But it was broadly welcomed by Tony Danker, CBI director-general, who said: "Today is day one of a new UK growth approach. We must now use this opportunity to make it count and bring growth to every corner of the UK. Fifteen years of anaemic growth cannot be repeated.”
He added: "It's not perfect - it's just the beginning - but there's plenty business can work with."
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