Another day and another government reversal/U-turn on their own policies. The new Chancellor, Jeremy Hunt, has chosen to announce sweeping changes to the Mini-Budget. In a pre-recorded interim statement, Hunt declared an abolishment of all the Mini-Budget announcements made by his predecessor, Kwasi Kwarteng.
The idea of providing an interim statement on Monday 17th October 2022 was in hope to calm the markets. A full detailed breakdown announcement was given in the House of Commons later that day. The move comes after Mr Hunt was sworn into Number 11 on Friday 14th October 2022, following the sacking of Kwasi Kwarteng.
We break down the key announcements and reaction of the Chancellor’s statement and why they’ve come about…
What Is Reversed?
- Planned 1p cut in basic rate of income tax put on hold indefinitely – rate will remain 20% for the indefinite, foreseeable future.
- Energy price guarantee will no longer last two years. The current energy price cap will remain in place until April 2023. A new review to save money and better target support will be published in 6 months’ time.
- Dividend tax cut is to be totally abolished.
- VAT-free shopping for visitors and alcohol duty freeze scrapped.
- Reforms to IR35, also known as off-payroll working rules, will no longer be repealed.
What Is Remaining?
- Cuts to stamp duty. This means no stamp duty is now paid on the first £250,000 of a property’s value for all buyers in England and Northern Ireland. For first-time buyers there is no stamp duty on properties up to £425,000.
- NI scrapped. National Insurance contributions increased by 1.25% in April 2022, announced by former Chancellor, Rishi Sunak. These are to now return to their previous levels. From 6th November 2022, the National Insurance rate will be 9% for profits between £9,881 and £50,270, and 2% for any profits over £50,270.
How Is The Reaction?
The news of another government reversal was met with a further sigh from the British public. Admittedly, the Mini-Budget announcements provided a huge dent in the economy and needed revision. However, it was not expected that a total abolishment of the Mini-Budget announcements would suffice as faith in Truss’ leadership continues to wain.
Roughly £45bn of unfunded tax cuts has in just three weeks and three days seen a £32bn reversal. The decision to reverse the energy price cap remains questionable, particularly with the uncertainty for businesses who remain in the dark until April 2023. The Treasury-led review will examine how households and businesses will be helped with energy bills from April 2023 onwards. Hunt stated that ‘support being provided from now until then would not change but beyond that date there would have to be changes’. The objective of the revision is to save taxpayers’ money while targeting support to those most in need. He went on to claim that ‘business support will go to those most affected and will incentivise energy efficiency’.
The reason for the reversal of the Mini-Budget was clear; to reinstate economic stability. The risk seems to have paid off for now, with the pound rising and government borrowing costs falling as investors welcomed the news. Sterling extended early morning gains against the dollar and is now trading at around $1.13. The news also saw the interest rate – or yield – on UK government bonds drop, making government borrowing less expensive. Bonds due to be repaid in 30 years’ time fell to 4.35%. Furthermore, the yield on bonds due to be repaid in five years’ time dropped to 3.86%.
Join Us To Discuss In Our Latest Webinar
We’ll be touching heavily upon these announcements in our latest webinar on Thursday 27th October at 12:30PM. The webinar will be hosted by our CEO, Mitch Hahn, where he will be joined by our Director of Strategic Advisory, Joe Sword, who will be providing insight on the situation and some of the conversations he’s been having with business owners. We will also be joined by Nordens’ Chief Sustainability Officer, Steven Brewer, who will be assessing the benefits of green, renewable energy, as well as CEO of Ultimate Finance, Josh Levy, who will be sharing information on what funding support is out there and the future of interest rates. It promises to be an insightful discussion so click here to book your place.
We hope this has outlined the key takeaways from Jeremy Hunt’s first announcement as Chancellor. If you’d like to know any further information on anything mentioned, or anything accounting related for that matter, please do not hesitate to get in contact with us at Nordens, where one of our trusted advisors would be happy talking you through your query.