Published: 26 September 2022
The budget that wasn’t: neither a budget apparently – and definitely not mini.
Shocks have been felt in the markets, with Sterling hitting its lowest rate against the Dollar since the introduction of decimalisation. Indeed, the rate has fallen 8% since Liz Truss became the PM: I am no expert, but that does not seem to be a good thing.
One effect will be to make imports more expensive.
Another is that economists believe that £45bn of tax cuts (more pf that in a moment) will lead to an unsustainable level of borrowing. This is likely to be at higher rates of interest.
And further, interest rates are likely to increase again, with some calling for the Bank of England to step in sooner than the normal monthly announcement. Not a sign of confidence.
So, those tax cuts. The first thing to remember is that some of them are not actual cuts. Take Corporation Tax for example. The plan was to increase the rate to 25% from 19%. That plan has now been cancelled, so the rate will be just as it is now – 19%.
NIC: the increase that we had at the start of the year, has now been cancelled and we will be back to where we were before the start of this tax year, from 6 November.
Stamp Duty has been cut. Although the wisdom of this is to be seen with respect to what it does to house prices.
There have been cuts with Income tax – the additional rate of 45% has been removed and the basic rate cut to 19%.
For high earners, though, they will still lose their personal allowances when salaries are over £100,000, which is a marginal rate of tax of 60%. Perhaps that is something that will be considered in future, with Kwasi Kwarteng over the weekend alluding to further tax cuts, and Rachel Reeves (his shadow) describing him as ‘fanning the flames”.
So, some cuts, but ones that we may not be able to afford. And ones that will pale into insignificance when compared to the increased cost of living. With base rate having increased by 2.15% over the last year, which is a likely to be an increase of at least £5,000pa for many homeowners, on top of other household costs.
In summary, I think a budget that we might be pleased with the tax cuts and grateful for what we have in the short term: but I worry about the future for the economy. Perhaps I should spend some of the tax savings on a crystal ball to find out what the future holds?
As with all budgets and tax events, it is the interplay between all taxes that needs to be considered: particularly so for business owners, where it is important to plan both personal and corporate taxes so that the sum of the two is minimised. If you would like some thoughts on your own circumstances and what the budget means for you, please get in touch.