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Mini-Budget 2022: A Summary for Business

The new prime minister Liz Truss and her chancellor Kwasi Kwarteng set out their vision for a “new era” of growth in their mini-Budget statement on 23 September 2022. The plans to stimulate the British economy involved cancelling many measures that businesses were expecting from April 2023. So, what can businesses expect now?

mini-budget

The announcement came against a backdrop of recession and the pound plunging to a 37-year low. The new government hopes that a marked shift from the state to private sector incentives will return some buoyancy to the UK economy.

The chancellor set out the three fiscal priorities moving forward:

  • Maintaining responsible public finances
  • Reforming the supply side of the economy
  • Cutting taxes to boost growth.

In what Paul Johnson, the Director of the Institute for Fiscal Studies (IFS) has called the “the biggest tax-cutting event since 1972”, the mini-Budget controversially didn’t coincide with the expected forecast from the Office for Budget Responsibility.

Here all the points that will be of importance to UK business in the months and years ahead:

A cap on energy prices for businesses

The government has already announced that average household energy bills will be capped at £2,500 a year for the next two years, in addition to a £400 contribution toward bills this winter.

Now, an Energy Bill Relief Scheme for non-domestic customers will begin on 1 October 2022 until 31 March 2023.

The scheme will extend to businesses, voluntary sector organisations, such as charities, and public sector organisations such as schools, hospitals, and care homes, and will roll out a cap of £211 per megawatt hour (MWh) for electricity and £75 per MWh for gas. The chancellor said that this will match the levels of support given to households.

For comparison, wholesale costs in England, Scotland and Wales for this winter are currently expected to be around £600 per MWh for electricity and £180 per MWh for gas.

Suppliers will apply reductions to the bills of all eligible non-domestic customers. Businesses do not need to take action or apply to the scheme. The government website contains more details about the scheme, along with some examples of potential cost savings.

Interest rates rise for the seventh consecutive time

To combat soaring inflation, the Bank of England has increased the base interest rate by 0.5%, to 2.25%.

The decision by the Monetary Policy Committee (MPC) takes rates to the highest level since 2008 and equates to paying approximately £49 more on a typical tracker mortgage, and £31 more for those on a standard variable rate mortgage.  

Corporation Tax rise will not go ahead

The chancellor announced that a planned rise on Corporation Tax from 19% to 25% in April 2023 will be cancelled.

This results in the UK having the lowest rate of Corporation Tax in the G20. Kwarteng said: “That’s £19 billion for businesses to reinvest, create jobs, raise wages, or pay the dividends that support our pensions.”

1p cut in Income Tax brought forward to 2023

The basic rate of Income Tax will be cut from 20% to 19% from April 2023.

This represents a tax cut of more than £5 billion a year. It will mean 31 million people will be better off by an average of £170 a year.

Health and Social Care Levy scrapped

Ahead of the mini-Budget, Kwarteng announced that the government will reverse the 1.25% National Insurance increase, introduced by Rishi Sunak in April 2022. The Health and Social Care Levy, which was to replace the 1.25 percentage point rise in April 2023, has also been scrapped.

The chancellor said: “Taxing our way to prosperity has never worked. To raise living standards for all, we need to be unapologetic about growing our economy. Cutting tax is crucial to this.”

The change will take effect on 6 November 2022.

This will reduce tax for 920,000 businesses by nearly £10,000 on average next year, the government says, as they will no longer pay a higher level of employer National Insurance.

Workers will also see a cut in their tax bill. The BBC reports that somebody earning £20,000 will save about £93 a year, and somebody earning £100,000 will save £1,093.

A cut in Stamp Duty

The government believes that cutting Stamp Duty will encourage economic growth by allowing more people to move and enabling first-time buyers to get on the property ladder.

The chancellor announced that, with immediate effect, no Stamp Duty will apply to the first £250,000 of a property purchase. This will save a second-time buyer £2,500 when they buy a house valued at more than £250,000.

The chancellor also increased the threshold at which first-time buyers will start paying Stamp Duty to £425,000 and increased the value on which they can claim relief from £500,000 to £625,000.

He said: “The steps we’ve taken today mean 200,000 more people will be taken out of paying Stamp Duty altogether. This is a permanent cut to Stamp Duty, effective from today.”

Creation of new investment zones

The government will work with the devolved administrations and local partners to introduce “investment zones” across the UK. Discussions have been held with almost 40 localities, such as Tees Valley and South Yorkshire.

Businesses in these designated zones will benefit from accelerated tax reliefs for structures and buildings and 100% tax relief on qualifying investments in plants and machinery.

There will be no Stamp Duty to pay on newly occupied business premises, no business rates to pay on new premises and, if a business hires a new employee in the investment zone, the employer will pay no National Insurance whatsoever on the first £50,000 they earn.

Removal of the bankers’ bonus cap

Arguably the most contentious measure of the statement was the removal of the current cap to bankers’ bonuses by the Prudential Regulation Authority.  

Mr Kwarteng said: “All the bonus cap did was to push up the basic salaries of bankers, or drive activity outside Europe. It never capped total remuneration…we’re going to get rid of it.”

Yet more change to IR35 rules

IR35 rules will be simplified, and the government will repeal the 2017 and 2021 reforms to costs and complexity for business. We will be expanding on this point and what it means for the self-employed sector in due course

Other measures

  • Venture Capital Trusts (VCTs) and the Enterprise Investment Scheme (EIS) extended
  • The government will wind down the Office of Tax Simplification
  • The Annual Investment Allowance will remain £1 million permanently, rather than returning to £200,000 in March 2023. This gives 100% tax relief to businesses on their plant and machinery investments up to the higher £1 million limit
  • The chancellor cancelled the planned rise in alcohol duty and confirmed that reforms to modernise alcohol duties will also be taken forward.

Discuss how the mini-Budget may affect your business

If you have any questions or concerns regarding the measures announced in the mini-Budget, please get in touch to speak with your usual team.

You can find out more details in the published Growth Plan 2022.

At the time of writing, the contents of this informational guide are accurate, but we recognise that details may be subject to change in the short and medium term.

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