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In his ‘fiscal statement’ or mini budget (opens in new tab), as it has been dubbed, Chancellor Kwasi Kwarteng announced a series of measures designed to grow the economy and to ease the pressure of the cost of living crisis on families by putting more money back in their pockets.
Speaking in the House of Commons, Kwasi Kwarteng (opens in new tab) announced a whole host of measures - some geared more towards businesses and others designed to benefit individuals. He also confirmed support that had previously been announced, including the energy bill freeze (opens in new tab) and the National Insurance increase reversal (opens in new tab).
The Chancellor said: “We need a new approach for a new era, focused on growth…And our plan is to expand the supply side of the economy through tax incentives and reform. That is how we will deliver higher wages, greater opportunities, and crucially, fund public services, now and into the future.”
So what did the Chancellor announce?
1. The Energy Price Guarantee
Technically, this was announced on 8 September by Prime Minister Liz Truss, but the Chancellor started his speech with “the issue most worrying the British people – the cost of energy.”
He said: “ People will have seen the horrors of Putin’s illegal invasion of Ukraine. They will have heard reports that their already-expensive energy bills could reach as high as £6,500 next year. Mr Speaker, we were never going to let this happen. The Prime Minister has acted with great speed to announce one of the most significant interventions the British state has ever made. People need to know that help is coming. And help is indeed coming.”
From 1 October, typical annual household energy bills be £2,500, and will remain at that level for two years. According to the Chancellor, this is a saving of at least £1,000 per year based on current prices.
The Chancellor also confirmed that the government will continue with existing plans to give all households who pay for their energy £400 off their energy bills (opens in new tab) between October 2022 and March 2023.
It was also announced that an Energy Markets Financing Scheme would be introduced to help energy suppliers deal with volatile energy prices.
The total cost for the energy packages for the six months from October is expected to be around £60 billion.
In a nutshell:
- Typical annual household energy bills to be frozen at £2,500 for two years
- £400 energy rebate will proceed as planned
- Energy packages expected to cost £60 billion in the six months from October 2022.
2. Change in Universal Credit rules
There will also be changes to the Universal Credit rules (opens in new tab) to encourage people to get back into work and fill empty positions that are limiting growth.
In his speech, Kwasi Kwarteng said: “One of the proudest achievements of our government is that unemployment is at the lowest level for nearly fifty years. But with more vacancies than unemployed people to fill them, we need to encourage people to join the labour market.
"We will make work pay by reducing people’s benefits if they don’t fulfil their job search commitments…We’ll ask around 120,000 more people on Universal Credit to take active steps to seek more and better paid work, or face having their benefits reduced.”
In a nutshell:
- Around 120,000 people on Universal Credit will be asked to take 'active steps' to seek work of face a benefit cut.
3. National insurance hike reversal
This measure was actually announced the day before the fiscal statement. National Insurance went up by 1.25 percentage points in April 2022, a measure introduced by the former government to help raise funding for the NHS and social care.
It was brought in for the current tax year, which runs from 6 April 2022 until 5 April 2023. It was then set to be replaced by a new Health and Social Care Levy.
However, both have been scrapped.
The National Insurance increase will be reversed from 6 November. The scrapping of the Health and Social Care Levy will mean that around 28 million people will save around £330 each year.
In a nutshell:
- National Insurance hike introduced in April 2022 will be reversed
- Health and Social Care Levy planned for 2023 has been scrapped.
4. Cutting stamp duty
Stamp duty (opens in new tab) is a tax you pay when you buy a house, flat or piece of land over a certain price. So if you’re looking to buy a property, especially as a first time buyer, this is good news.
Under the current rules, you don’t pay stamp duty on the first £125,000 of a property’s value, but that will now be doubled to £250,000.
First time buyers don’t currently pay stamp duty on the first £300,000 of a property’s value, but this will now be increased to £425,000.
With these steps, effective from 23 September 2022, around 200,000 will no longer have to pay stamp duty, and those who do have to pay it will be pay less.
CEO of GetAgent.co.uk, Colby Short (opens in new tab), commented: “Positive news for homebuyers, particularly first-time buyers who stand to make a considerable saving when purchasing their first property."
In a nutshell:
- No stamp duty to be paid on first £250,000 of a property's value
- For first-time buyers, no stamp duty to be paid on first £425,000 of a property's value
- Changes are effective immediately.
5. Cutting income tax
From April 2023, the basic rate of income tax will be cut from the current level of 20% to 19%. (Check out our helpful ‘what is income tax?’ guide for more details on how it’s calculated and who has to pay it).
The income tax system, which currently has three rates, will be simplified to just have two rates, the basic rate of 19% and a higher rate of 40%.
According to the Chancellor, the reduction of the basic rate will mean a tax cut for around 31 million people.
Andrew Megson (opens in new tab), executive chairman of My Pension Expert, said: “The government has been undeniably bold in this ‘mini budget’ – much to the relief of many Britons. Indeed, a reversal of the National Insurance hike and income tax cuts will in the short term, boost the amount of pay people in work take home each month.”
In a nutshell:
- Basic rate of income tax will be reduced from 20% to 19% from April 2023, meaning a tax cut for around 31 million people
- Income tax system will be simplified to have just two rates, the basic rate and a higher rate of 40%.
What else was announced?
Other measures, including scrapping of a corporation tax increase were announced to help businesses. It was also announced that the UK will introduce VAT-free shopping for overseas visitors and that new legislation will be introduced to require trade unions to put pay offers from employers to a member vote to ensure that strike action can only be called once negotiations have fully broken down.
The Chancellor also mentioned childcare at one point, but there was no major announcement regarding that in the fiscal statement. However there may be more aspects of the plan revealed in coming weeks.
Kwasi Kwarteng said: “Over the coming weeks, my Cabinet colleagues will update the House on every aspect of our ambitious agenda.
“Those updates will cover: the planning system, business regulations, childcare, immigration, agricultural productivity, and digital infrastructure.”
Since the announcement of this host of tax cuts, the pound has dropped in value against the US dollar, causing the Bank of England to comment that it will not hesitate to raise interest rates again. As a result of the uncertainty around interest rates, more than 900 mortgage products have been removed from the market, leaving prospective homebuyer's wondering whether their mortgage offer will be revoked.
If this applies to you, make sure you check out our 'can a mortgage offer be withdrawn? (opens in new tab)' article.