Budget details and reaction: Massive tax cut package unveiled

A massive package of tax cuts was announced by new chancellor Kwasi Kwarteng in his mini-budget statement to MPs today.

The full package of cuts he unveiled has been put at £45bn, the biggest since the 1970s. Announcing them, the chancellor declared that low taxes encourage investment.

And he said his “Growth Plan” would release the huge potential in the British economy by tackling high energy costs and inflation and delivering higher productivity and wages.

Next year’s increase in corporation tax from 19 per cent to 25 per cent has been scrapped. It will remain at 19 per cent with the chancellor declaring: “We will have the lowest rate of corporation tax in the G20.”

He said reversing the tax rise would put £19bn a year back into the economy and companies would be able to use this to “reinvest, create jobs, raise wages, or pay dividends which support our pensions”.

The chancellor also confirmed the National Insurance rise introduced earlier this year will be cancelled from November 6. Funding for health and social care will now come from general taxation.

That move will save 920,000 businesses almost £10,000 on average next year.

When it comes to income tax, the higher rate 45 per cent band will be scrapped entirely and the basic rate will be cut from April 2023 from 20 per cent to 19 per cent, a year earlier than planned.

Mr Kwarteng said the cuts mean “We will have one of the most competitive and pro-growth income tax systems in the world.”

He said cutting the highest rate, currently paid by those earning more than £150,000, would “reward enterprise and work. It will incentivise growth. It will benefit the whole economy and the whole country.”

Stamp duty has also been cut.  Nothing will be paid for first £250,000 of property’s value - double the current amount allowed.

The threshold for first-time buyers will also go up from £300,000 to £425,000. The value of the property on which first-time buyers can claim relief increases from £500,000 to £625,000.

The chancellor also announced more relief for businesses by making the Annual Investment Allowance £1million permanently, rather than letting it return to £200,000 in March 2023. This gives 100 per cent tax relief to businesses on their plant and machinery investments up to the higher £1 million limit.

Planned increases in duty rates for beer, wine and cider will also be cancelled.

Tax reform is also firmly on the agenda. In his speech the chancellor confirmed that the government will review the tax system.

He also announced he was winding down the Office of Tax Simplification (OTS) and is asking every department and all his officials to focus on simplifying the system.

The chancellor told MPs: “We will review the tax system to make it simpler, more dynamic, and fairer for families. For the tax system to favour growth, it needs to be much simpler.”

He also revealed that government will legislate to remove planning restrictions ‘that constrain growth’, saying the current system is too slow. He told MPs: “We’re accelerating new road, rail and energy projects by removing restrictions that have slowed down progress for too long.”

The government also has plans to create “new investment centres” and is in discussions with almost 40 areas in the country to create the zones.

He said: We will cut taxes for businesses in designated tax sites for 10 years. There will be accelerated tax reliefs for structures and buildings and 100 per cent tax relief on qualifying investments in plants and machinery, on purchases of land and buildings for commercial or new residential developments.

“There’ll be no stamp duty to pay whatsoever on newly occupied business premises. There’ll be no business rates to pay whatsoever and if a business hires a new employee in the tax site, then on the first £50,000 pounds they earn, the employer will pay no National Insurance whatsoever.”

The government will also provide up to £500m to support new innovative funds and attract billions of additional pounds into UK science and technology scale-ups.

LANCASHIRE’S REACTION

Jane Parry, managing partner of accountancy firm PM+M, said: “On the face of it, today’s barrage of tax cuts - including the basic rate of income tax cut and the abolition of the 45p additional rate - will be welcomed by some, but we are talking about some truly eye watering sums that are being added to the national debt.

“Some of the world’s leading economic voices and leaders believe this form of ‘trickle down’ economics is deeply flawed and will put the public finances on an unstable footing for years to come, and I am with them.

“Especially when compounded by the lack of an energy company windfall tax which is, in my view, pretty shameful.

“The news that corporation tax will stay at 19% is good news for businesses struggling with mounting costs, but - of course – it will only be benefit to companies that are actually making a profit.

“The energy price cap for business is a positive step but it’s still a chunky hike in costs and the real issue is that it gives no long-term certainty, which is what firms need.”

She added: The chancellor’s commitment to cutting business red tape and bureaucratic costs is great, but there was no mention of the relentless march of the Making Tax Digital and basis period reform programme which is due to hit the self-employed and landlords from April 2024, adding significantly to their costs of compliance.” 

Robert White, chief executive at law firm Brabners, said: “Many households and businesses will welcome the benefits of today’s tax and energy interventions and, more generally, the new administration’s focus on growth.

“However, the need to address underlying low productivity in the UK remains. Shorter-term intervention measures like those announced today need to be matched by a longer-term investment plan aimed at reducing barriers such as poor connectivity and a lack of social mobility – particularly in the North where the need for the government to deliver on its commitment to ‘level up’ is ever more pressing.”

Matthew Johnson, associate partner at Preston headquartered accounting and business advice firm WNJ, said: “The chancellor has announced the biggest package of tax cuts since the early 1970s in a seismic policy switch for the government.

“The plan is clear – cut taxes to promote growth, which is good news for business. So too is the commitment to cutting swathes of red tape.

“The scrapping of the Corporation Tax rise is a positive move as is the National Insurance reversal. Now is not the time for increasing the burden on businesses and individuals.

“The commitment to simplify the tax system and reduce income tax rates will be welcomed by all.”

Sarah Williams, head of employment at law firm Taylors Solicitors, said: “Business owners, HR managers and workers across the UK will be relieved at today’s news that the government plans to scrap IR35.

“When it was introduced to the private sector on 6 April 2021, businesses and workers alike were plunged into turmoil, as almost every aspect of working life and, in some instances, home life were excruciatingly examined.

“HR managers and employment lawyers were asked numerous questions about avoiding the IR35 trap, hours were spent reviewing contracts, explaining the control, substitution, and ‘MOO’ test, (mutuality of obligation).

“We had to consider other ‘tests’ too, such as financial risk, provision of equipment and office space, and the old contractual ‘nutshell’ – legal intention. The list of considerations seemed to go on and on and, in relation to many contracts, no one could provide a definitive answer as to whether a contract fell outside IR35.

“IR35 was introduced as a way of raising revenue but many consultants, workers and contractors lost their ability to work. Overnight, businesses – especially those that were struggling to survive during the pandemic – lost their cost-saving ability to rely on flexible additional business support without having to increase the size of the workforce.

“The removal of IR35 will hopefully encourage people who need to work flexibly, including those who have protected characteristics, to return to the work they enjoy the most.”

Tony Reddin, tax partner, MHA Moore and Smalley, said: “The tax reforms announced by chancellor Kwasi Kwarteng in today’s fiscal announcement represent one of the most significant shake-ups of UK finances over recent decades.

“The measures are all aimed at prompting growth at a crucial time for the UK economy by incentivising investment.

“A string of cuts aimed at UK businesses include the cancelled rise in corporation tax from 19% to 25% as well as the creation of more than 40 new investment zones across England, which will benefit from reduced business taxes and relaxed planning rules aimed at encouraging firms to invest.

“There are also a range of tax cuts designed to boost personal income and make the UK significantly more competitive on a global scale.

“The most significant of these is the scrapping of the top rate of income tax of 45% to 40%. Also announced was the acceleration by a year of the cut in the basic rate of income tax to 19%, a measure which will mean more than 31 million people across the UK keep a greater proportion of their earnings.

“Alongside other notable announcements, including an increase in the stamp duty threshold for residential purchases, a reversal of planned increases to national insurance and cuts to duty rates for beer, cider and wines, this is clear evidence of the government’s intention to kick-start the economy by easing the tax burden on both people and businesses.”

Tony Danker, CBI director-general, said: “This is a turning point for our economy. Like Covid, the energy crisis has meant government has had to spend massively to protect people and businesses. That means we have no choice but to go for growth to afford it.

“Today is day one of a new UK growth approach. We must now use this opportunity to make it count and bring growth to every corner of the UK. Fifteen years of anaemic growth cannot be repeated. 

“Taking action to get Britain’s economy moving again by beginning construction on transport and green infrastructure projects shows immediate delivery. Planning reform is long overdue. A simpler, smarter approach to tax can pay dividends, and firms will be keen to make the most of the investment incentives on offer. 

“It’s not perfect – it’s just the beginning – but there’s plenty business can work with. The chancellor signalled more proposals to come this autumn and these will be vital to sustain momentum on growth.”