The new Chancellor of the Exchequer, Kwasi Kwarteng, has presented the emergency mini-budget to get the UK's economy growing, and to provide instant help to millions of people struggling to pay their bills.
After PM Liz Truss announced a plan to limit energy bills in the country, which led to restricting bills to £2,500 for two years from October, Kwartneng aims to deliver a plan of action to reverse the latest increase in National Insurance, while also making changes to Corporation Tax and Income Tax. The new Prime Minister highlighted a few days ago that "corporation tax needs to be competitive with other countries so that we can attract that investment.”
Read on to find out what the government's proposals look like that aim to deal with the increasing inflation and consequent high cost of living that the UK is currently experiencing.
National Insurance increase will be reversed
Yesterday, the Treasury announced that the latest 1.25% National Insurance rise will be reversed from November 6. This measure will save 28 million people £330 on average next year.
This will also benefit 920,000 businesses, reducing tax by nearly £10,000 on average next year, because they won't need to pay a higher level of employer National Insurance.
Income Tax will also be cut
Like it was expected, the UK government is also cutting Income Tax by 1% for 2023, from 20% to 19%.
Apart from this, the top rate of 45% is being scrapped, which means the highest rate will be 40% (for people who earn over £150,000).
Health and Social Care Levy cancelled
Besides this, the government decided on canceling the planned health and social care levy, which was a separate tax coming in April 2023 to substitute this year's National Insurance rise. This approach will allow almost 28 million people across the UK to keep more of what they are earning, which corresponds to an additional saving of around £135 on average this year.
This levy was supposed to raise around £13 billion a year to fund health and social care. However, Chancellor Kwasi Kwarteng corroborated that the funding for these services will still be preserved as if this levy was in place, guaranteeing the NHS is fully functioning through the winter.
Cancellation of a planned rise in Corporation Tax
Corporation tax will continue to be kept at 19%, the lowest rate in the G-20. It was previously supposed to increase to 25%.
Other measures
- There will be a permanent increase in stamp duty thresholds, which will decrease the tax paid on purchasing homes. In a nutshell, the £500,000 threshold will rise from £500,000 to £650,000;
- Tax on home purchases will be cut;
- A network of “investment zones” around the UK will be created, where businesses will be offered tax cuts, liberalised planning rules, and a reduction in regulatory obstacles;
- VAT-free shopping for tourists will be introduced to stimulate the economy;
- The government will also scrap the planned alcohol duty increase for various alcohols;
- Finally, the government will get rid of the cap on bankers' bonuses to attract banks to create jobs in London.
Bottom Line
Committing to a new period of economic growth, Chancellor Kwasi Kwartneng said, while announcing this package of tax cuts worth £45 billion: “High taxes reduce incentives to work and they hinder enterprise.”
He also added that “in the context of the global energy crisis, it is entirely appropriate for the government to take action,” and that “fiscal responsibility remains essential”, stating he would be allowing the Office Budget Responsibility to examine the Treasury’s spending plans before the end of the year.
The Institute for Fiscal Studies, an economic research group, mentioned that the reversal in the income tax rise and cancelling the planned rise in corporation tax would lead to a £30 billion reduction in taxation revenue.
Note that these are the biggest tax cuts the country has unveiled since 1972.
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