The Mini-Budget – where are we now?

In his statement on the morning of 17 October, Jeremy Hunt, the new Chancellor of the Exchequer, re-visited the Mini Budget announcements made by Kwasi Kwarteng on 23 September.

Yesterday, I was trying to write an article looking ahead to the full statement that Jeremy Hunt will make on 31 October. I considered the Mini-Budget announcements and my conclusion was that he would do everything he could to minimise votes in Parliament on the measures, and so pretty much all of the Mini-Budget other than the National Insurance and property purchase tax cuts would be reversed. Today, that is what happened.

Jeremy Hunt said he would reverse everything that had not already started a parliamentary process. So far, only two of the Mini-Budget measures have been subject to a legislative process and so will remain from Kwasi Kwarteng’s statement:

1. The National Insurance reduction in 2022/23 is in progress, as is the abolition of the Health & Social Care Levy from April next year. The Health & Social Care Levy (Repeal) Bill has already been through all three readings in the House of Commons and so is now effectively only awaiting Royal Assent. It is currently having its third reading in the House of Lords, but as it is a “money bill”, the House of Lords cannot block it. A further point here is that the Conservative Party’s 2019 manifesto gave a commitment not to “raise the rate of income tax, VAT or National Insurance”. Conservative MPs were never happy with Rishi Sunak’s increase in National Insurance as they felt it breached a manifesto commitment, and so it is reasonable to assume that this repeal would pass through Parliament relatively easily. It was a big money raiser (about £14 billion a year) and a landmark measure when announced by Boris Johnson in September 2021.
2. The abolition of the 2% band for Stamp Duty Land Tax (SDLT) in England and Northern Ireland, Land Transaction Tax (LTT) in Wales and Land and Buildings Transaction Tax (LBTT) in Scotland. Parliament approved a provisional change to the law on 23 September and new statutory instruments have been put in place in each country in the UK. Jeremy Hunt could have reversed it, but what’s the point? The tax cost of the reduction was expected to be about £1.5 billion a year – but that assumed housing market activity continued at its normal level, which it probably won’t. It seems to be a measure that might even support economic activity over the coming recession, and relatively, not that much money in fiscal terms.

All the other tax measures Kwasi Kwarteng announced on 23 September have been reversed. Prior to 17 October, we had already been informed of U-turns on the abolition of the additional rate of income tax and the increase in corporation tax. Jeremy Hunt was now specific in saying the following:

• The 1p cut in the basic rate of income tax won’t happen in April 2023 and there is realistically no prospect of it being implemented (ever)
• The off-payrolling legislation will remain in place
• Dividend tax rates will remain at the current rates in 2022/23 (as increased by 1.25%), even though the Health & Social Care Levy has been repealed. Politically, it is hard to see how Conservative MPs could vote to cut dividend tax rates during a cost of living crisis and, in any case, the Government needs the tax revenue
• VAT-free shopping for non-UK visitors will not be introduced

Jeremy Hunt was not explicit about the Investment Zones announced by Kwasi Kwarteng last month, but HM Treasury is definitely in control now and those low-tax areas were seen as risking too much tax leakage, so they never looked very likely to be introduced. Nor, in his brief televised statement, was there any mention of the previously announced abolition of the Office for Tax Simplification (OTS).

More pertinent to many of our clients is the new Chancellor’s confirmation that the Annual Investment Allowance (AIA) is to remain at £1m permanently. On October 31 we may learn more about his attitude to any of the enhanced tax relief on capital expenditure measures from next April that Rishi Sunak was promising.

Finally, tax rates on profit extraction from companies are looking very high from next April, with the rise in corporation tax and no reduction in dividend tax rates. The message is clear – jam tomorrow, not today.

This is another development in an ongoing saga. Economic reality on tax is being recognised. Jeremy Hunt has announced that the energy support package will be much reduced and so the expected cost of it will be lower. Crucially, that means less government debt, which means less interest on the debt, a more favourable rate of interest on the debt because of greater prudence, and so less interest being paid by the Government in future. In turn, that means less of a hole in the Government’s finances in future years having to be filled. A position that any accountant, and that includes both our Prime Minister and me, should welcome.

Read more analysis in our mini-Budget hub.