U turn road sign to represent government annoucements

New Chancellor reverses almost all announced tax cuts

Some are saying this is the biggest U turn in British History, the last week has seen some significant announcements of U turns in policy, made even more remarkable given the short tenure of the existing Prime Minister.

With Stock Market uncertainty and increased costs of borrowing in recent weeks, the Government obviously felt the need to undo some of the proposed changes.  The chancellor is reversing almost all tax measures announced in the growth plan three weeks ago that have not yet commenced the legislative process.

So what did we already know?

  • The plan to scrap a planned increase in Corporation Tax, has been undone.  Accordingly from 1 April 2023 we expect the main rate to increase from 19% to 25% as previously planned.  Companies with taxable profits of up to £50,000 will still pay 19%, and where profits are between £50,000 and £250,000 a marginal relief will apply meaning the tax rate will gradually increase with higher profits.
  • The plan to scrap the additional rate of income tax for high earners (>£150,000 income) was reversed.  So the 45% additional rate of income tax will still apply.

What did we learn today?

  • The basic rate of income tax is to remain at 20% indefinitely.  It was planned to reduce this to 19% with effect from April 2023, but that is no longer going ahead. Previously there was a plan to reduce the basic rate by 1% by the end of parliament, but it appears even that policy change has been withdrawn.
  • Whilst there will be no change to the Energy Support announced between now and April, the current support will stop in six months.  What happens beyond then is unknown and there will be a review of the type of support and where it needs to be targeted so informed decisions can be made.
  • It was previously announced that the government planned to scrap the recent changes regarding off payroll working (commonly known as IR35).  This too has been reneged and an Industry that has just got used to the changes, need not deal with anything further for now.
  • The National Insurance reduction still applies as outlined.  This was a key aspect of Liz Truss’ leadership campaign and Social Care Levy will be scrapped.  What was announced today however is the planned reduction in dividend rates (which was to mirror the change in National Insurance) will not occur.  So overall this is good news for employees and employers, but less attractive for investors, in particular director shareholder companies.
  • The planned freeze on alcohol duty rates from 1 February 2023 for a year will not proceed.  This will be worth approximately £600 million a year. The next steps of the Alcohol Duty Review announced in Growth Plan 2022 will continue as planned
  • The announced cut to Stamp Duty will still go ahead as planned.

Of course, most of these changes had not been legislated as of yet, so nothing had hit the statute book.  However the new Chancellor vowed there will be more difficult decisions to be made on tax and spending, and that there would have to be cuts.

At a time of huge uncertainty, this may settle the markets for a time, but a huge part of the electorate will be left mesmerised and in shock (financial and otherwise) from the situation we as a country find ourselves in.

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