Chancellor announces series of tax cuts in plan to target 2.5%

Chancellor Kwasi Kwarteng has unveiled a series of major tax cuts for individuals and businesses with the announcement of his Growth Plan.

In a series of announcements heralded as a ‘mini-budget’, the Chancellor has set out his ambitions for reaching 2.5% growth and to secure sustainable funding for public services and drive up living standards nationwide. The announcements follow yesterday’s interest rate rise and the reveal of the Bank of England’s estimation that the UK economy was now in recession.

The Chancellor of the Exchequer, Kwasi Kwarteng, said:

“Economic growth isn’t some academic term with no connection to the real world. It means more jobs, higher pay and more money to fund public services, like schools and the NHS.

“This will not happen overnight but the tax cuts and reforms I’ve announced today – the biggest package in generations – send a clear signal that growth is our priority.”

Corporation Tax

The Chancellor has announced he will reverse the planned increases in Corporation Tax, announced by his predecessor Rishi Sunak in April’s Spring Statement, and it will remain at 19%, rather than being increased from 2023. At the current rate, the UK will continue to have the lowest Corporation Tax in the G20, and it is hoped that maintaining a lower tax rate for businesses will encourage foreign investment in the UK and encourage businesses to reinvest more of their profits into future growth.

National Insurance

In another reversal of the previous Chancellor’s policies, Kwasi Kwarteng also confirmed that a 1.25 percentage point increase in the rate National Insurance Contributions will also be reversed for both employee and employer contributions. The increased threshold at which NICs begin to be paid for workers however will remain.

Income Tax

From April 2023, the Basic Rate of Income Tax on earnings will drop to 19%.

Higher earners with incomes of over £150,000 will also see the tax on their earnings over this threshold cut from 45% to 40%.

Cuts in the rates of Income Tax will not however affect taxpayers in Scotland due to powers devolved to Holyrood, although the Scottish government is set to receive a comparable boost to funding in its place.

Stamp Duty

Anyone purchasing a property worth less than £250,000 will no longer pay Stamp Duty on the purchase – the previous nil-rate threshold had been £125,000. First-time buyers will also now be able to purchase a home worth up to £425,000 and pay no Stamp Duty, with the ceiling for Stamp Duty Relief for new homeowners rising to £625,000.

Support for hospitality and retail sector

Kwasi Kwarteng announce he would extend support for the hospitality and retail sectors, still recovering from the Covid-19 pandemic. Alcohol Duty will remain frozen for another year, with a consultation on plans to reform how alcohol is taxed due to published.

Investment Zones

It was also confirmed that the government is in discussion with 38 local and mayoral combined authority areas in England including Tees Valley, South Yorkshire and West of England to set up Investment Zones in specific sites within their area. Each Investment Zone will offer generous, targeted and time limited tax cuts for businesses and liberalised planning rules to release more land for housing and commercial development. These will be hubs for growth, encouraging investment in new shopping centres, restaurants, apartments and offices, and creating thriving new communities.

The Chancellor also announced the Annual Investment Allowance of £1 million will be permanent, rather than returning to £200,000 in March 2023. This allowance gives 100% tax relief to businesses on their plant and machinery investments up to the higher £1 million limit.

Other measures

Other measures announced by the Chancellor include:

• Changing regulations to support pension funds to invest more into UK assets and businesses
• Universal Credit Claimants who earn less than the equivalent of 15 hours a week at National Living Wage will be required to meet regularly with their Work Coach and take active steps to increase their earnings
• Jobseekers over the age of 50 will also be given extra time with jobcentre work coaches, to help them return to the jobs market amid rising economic inactivity in this age bracket
• New legislation to make it quicker to plan and build new roads, speeding up the deployment of energy infrastructure like offshore wind farms and streamlining environmental assessments and regulations
• Confirmation of capping of energy prices for both domestic and non-domestic properties, as previously announced by Prime Minister Liz Truss
• Lifting the cap on bankers’ bonuses to boost the attractiveness of The City of London as a financial hub