With a new Prime Minister, it’s not surprising to see a fairly immediate statement on the country’s finances. The most surprising part however, was the scale of the statement as it covered an enormous range of subjects, and represents a genuine change of approach to managing the economy.
Benefits for lower income households
With the current cost of living crisis, the statement needed to offer some support for those living in lower income households. In short, some of the benefits included:
- Confirmation of a price cap on energy tariffs, meaning the average house will only pay £2,500 a year. The excess will be funded by the government through borrowing, meaning the national debt will increase going forward. Importantly, the average is based on a cap on unit price, meaning households with greater usages (e.g. those with medical equipment on site) may still spend more than this
- Scrapping of the proposed National Insurance increase. As expected, this will not go ahead and will save 2.5% combined for individuals, split between employers and employees. This was originally earmarked as funding for social care, so presumably this will need to be funded from elsewhere now
- Reduction of the basic rate of income tax from 20% to 19%
- Increasing the band of property purchase on which no stamp duty is payable by first-time buyers from £300,000 to £425,000, or up to £250,000 for additional properties.
Although the above benefits sound promising, the energy cap still represents a much higher level than the UK’s lowest earners can afford, meaning there may be a difficult couple of years ahead for some. Another potentially unpopular announcement came for people receiving Universal Credit (UC). From January 2023 recipients will have their benefits cut if they fail to meet requirements for seeking work.
Benefits for higher income households
The budget also rolled out a number of tax benefits for those bringing in a higher income, this included:
- Abolition of additional rate tax band, resulting in a reduction in tax from 45% to 40% for those earning £150,000 or more
- Scrapping of corporation tax rise originally proposed (25% proposed, held at 19%)
- Removing of the changes introduced to IR-35 over the last two years, making it easier to divert funds out of an employer-employee arrangement and into the self-employed regime
- Confirmation that the Venture Capital Trust and (Seed) Enterprise Investment Scheme regimes will continue indefinitely.
More specifically, within the statement it was announced that the bankers’ bonuses cap was to be scrapped. Initially this was brought in following the 2008/09 financial crash, because bankers were seen as taking an unnecessary level of risk to achieve wild levels of bonuses. The cap has now been lifted, resulting in obvious benefits for those in the industry.
Issues with the budget
Overall, there will be some issues that raise concern; no costings were provided within this statement, and projections by the Office of Budget Responsibility were very specifically suppressed. This leaves a bit of a black hole when it comes to how much will end up in the national debt, with overall borrowing for the 2022/23 tax year expected to rise from £162bn to £234bn.
Another worrying update is that the Office of Tax Simplification has been scrapped as part of this statement; this means less independent oversight of government initiatives going forward. This leaves the question, what else might be changing?
Other issues include:
- Economic growth as measured by GDP has been targeted at 2.5% annually going forward. However there was little information about how this will be achieved, especially in light of the Bank of England stating this week that we may currently be in recession
- As mentioned above, the proposed energy cap provides both positive and negative implications. While the cap is expected to result in a reduction of inflation of around five percent, it’s important to note that this cost is still going to be paid by the country as a whole, meaning it is likely to add to national debt for generations
- It was announced that strike action is to be curtailed, this could be seen as attacking the rights of workers to withdraw their labour as part of negotiations with employers
- There was also mention that the pensions charging cap would be revisited, which might allow schemes to invest into a wider range of default investment strategies.
For many this statement has been described as a ‘marmite’ budget, with pros and cons for low and high income households. One thing’s for sure though, it was anything but a mini budget.