On Friday, Chancellor Kwasi Kwarteng has delivered his long awaited mini-budget, in which he laid out his plan to boost the economy and support businesses.
When Mr Kwarteng stood up in the House of Commons this Friday, he revealed, what he called, the biggest tax cuts in a generation. And the announcements in the mini-budget go much further than many have expected.
Apart from tax cuts, reversal of tax rises and other measures are meant to give the economy a growth boost, which is why the package has been given the name Growth Plan.
The Treasury hopes to achieve an ambitious target of 2.5% trend of growth with the measures announced in the Growth Plan.
What Is In The Mini-Budget?
The Chancellor has announced a storm of tax cuts, which include:
- From April 2023, basic income rate will be cut to 19% in England, Wales and Northern Ireland – a year earlier than Rishi Sunak has planned
- The higher rate of income tax of 45% will be scrapped in England, Wales and Northern Ireland
- Planned rise in corporation tax UK-wide from 19% to 25% will not go ahead – it was planned to come into force in April 2023
- Reversal of the rise in National Insurance Contributions (NIC) from November 2022 – Rishi Sunak brought in a 1.25p in the pound rise in April 2022
- Cut to stamp duty
- VAT scrapped for overseas visitors
- Planned tax increases on alcohol will not go ahead
These tax cuts are worth £50bn and are aimed at attracting investment to the UK, which will, according to the Chancellor, increase the living standards for everyone.
We want businesses to invest in the UK, we want the brightest and the best to work here and we want better living standards for everyone.Kwasi Kwarteng, The Chancellor of the Exchequer
Apart from the various tax cuts, the mini-budget also includes other measures. The Chancellor announced a simplification of IR35 rules, which regulate working off-payroll.
The annual investment allowance for business will be frozen at £1m for the foreseeable future, which means business will not have to pay tax on any money they invest up to £1m.
Investors will also receive tax relief on up to £250,000 if they invest in new and start-up companies. And employees will have their share options increased from £30,000 to £60,000.
There will also be changes to regulations so that pension funds can increase UK investments.
Limits on bankers’ bonuses will be dropped, and the benefit system will be tightened.
Energy Support For Businesses
Outside the mini-budget, the Business Secretary, Jacob Rees-Mogg, has announced details about the Energy Bill Relief Scheme for businesses, giving the millions of small businesses clarity about how they will be supported this winter.
Mr Rees-Mogg has revealed that the energy price for businesses will be capped at 21.1p per KWh for electricity and 7.5p per KWh for gas. This means that companies will see their energy bills halved this winter from what was expected.
Prime Minister Liz Truss hopes that this will give small business owners peace of mind and prevent small businesses from collapsing.
The cap does only apply to wholesale energy prices, which means that businesses will still have to pay other charges. However, these tend to be fairly small.
The Business Secretary has confirmed that the difference between what energy companies have to pay for energy and what businesses pay will be covered by the Government.
He also confirmed that the cap will be in place for six months and will begin in October.
However, energy suppliers have warned that they might not be able to pass on the Government support to businesses before November. The Government has previously said that if there were delays, then bills will be backdated to 1 October.
The Energy Bill Relief Support Package only covers England, Wales and Scotland. But a similar scheme will be introduced in Northern Ireland to support small businesses.
Pound Dropped To Record Low Following Announcement Of Growth Plan
While it was expected to be an emergency budget that deals with soaring energy bills for households and businesses and the cost of living crisis, the scope of the mini-budget is much bigger.
This has surprised many commentators as well as businesses. But it has also scared investors, leading to the pound falling to a record low against the dollar. Because international investors worry that the spending set out in the Growth Plan is not sustainable.
On Monday the Pound has dropped by almost 5% to $1.0327, which is a record low. This has led to calls for the Bank of England to step in and intervene.
So while the announced measures in the Growth Plan will help small businesses to get through winter and beyond, it is a big gamble. If it pays off, it will boost growth. If not, it might spell disaster for the UK.