Chancellor’s new Growth Plan brings swathes of tax cuts

The new mini-budget announced today by Chancellor Kwasi Kwarteng includes a package of tax cuts which has been compared to the ones presented by Tory chancellor Anthony Barber in 1972.

From next April, the basic rate of income tax will drop by 1p in the pound, bringing it down to 19 per cent – this is a year earlier than was originally planned.

According to the Treasury, this will “mean 31 million people will be better off by an average of £170 per year” in 2023-24.On average, basic-rate taxpayers will see an extra £130 in 23-24, whereas higher-rate taxpayers will gain around £360.

Pensioners are also likely to benefit from this cut, as both annuities and drawdown are subject to income tax – someone on a £25,000 income should pay more than £125 less per year.

The top rate of income tax, which sees people earning more than £150,000 pay 45 per cent (known as ‘additional rate’), is being abolished, moving to a single higher rate of 40 per cent. This cut will benefit around 660,000 individuals – around 1 per cent of the UK population.

Additional-rate tax payers will also be given a personal savings allowance of £500, brought into line with higher rate tax payers.

Previous plans to free the personal tax free allowance at £12,570 over the next four years have been reaffirmed, this will mean that as wages rise an increasing number of low-income households will begin paying the basic rate.

The government is also going back on the 1.25 per cent point rise in national insurance contributions, putting around £17 back in the pockets of basic-rate tax payers.

The change will bring a saving of £93 a year for someone earning £20,000, £343 for someone on £40,000, £593 for earnings of £60,000, and £1,093 for £100,000.

Finally, stamp duty has been cut, taking the point up to which which none is paid to £250,000 from £125,000. The threshold for first time buyers has gone up to £425,000 from £300,000. These cuts are permanent and will come into effect immediately.

Thames Valley partners at Audit, tax, advisory and risk firm Crowe UK have reacted to the news:

Jane Mackay, National Head of Tax, said: “While deemed a mini-Budget, this was more a massive tax cutting exercise – the biggest since 1972.  As part of the vision to stimulate growth there were some unexpected cuts announced including a reduction in income tax rates with the basic rate reducing to 19% and additional rate of 45% abolished, stamp duty cuts, and wide-reaching tax reliefs for around 40 enterprise zones.

“These came on top of the expected tax increase reversals, many of changes made by Kwarteng’s predecessor. The Chancellor has thrown everything including the kitchen sink into the tax cutting measures.

“What we didn’t hear about was how this will be funded, and, with the government itself estimating that the tax cuts will cost £161 billion over five years, it feels like a gamble. Let’s hope it pays off. 

Stuart Weekes, Corporate Tax Partner, said: “This mini-Budget arguably leaves us with more questions, than answers: Is this really the start of a new era or just a desperate statement hanging onto the hope that reducing taxes will kick start the economy?

“Facing tough economic challenges, rising prices and a recession, does the Chancellor have insight or is this simply a roll of the dice? There are incentives for businesses but does the Chancellor really value innovative businesses?

“SMEs take risks by investing in research and development and should be embraced by the UK government. Many SMEs really value the tax repayments provided by the R&D tax credit scheme but are subject to a PAYE cap.

“Reducing personal taxation will limit the R&D tax relief SMEs will receive. In an era where the tax authorities are taking a tougher stance with companies making R&D tax credit claims combined with the impending introduction of stricter regulation, some might wonder whether this government really values innovation.”

Jeremy Cooper, Head of Retail, said: “The retail sector will welcome the announcements made today in the ‘mini-Budget’ given the impact inflation, interest rate rises and eye watering increases in energy costs have had on consumer spending.

“Whether the proposed cuts to the basic rate of income tax, the reduction in the national insurance or the abolition of higher rate tax will be enough to stimulate growth or not, time will tell.

“However, the introduction of VAT-free shopping for overseas tourists, coupled with the current low value of the pound will surely make the UK an attractive tourist destination and should have a positive impact for the retail sector, particularly in tourist destinations across Britain.

“The increase in the stamp duty thresholds will certainly help towards the cost of purchasing a home but with rising interest rates and further rises expected to curb inflation, it remains to be seen if we will see a boom in house sales and the knock-on effects for home furnishings and DIY retailers.”