Undoing huge swathes of policy from the previous two Conservative governments, Chancellor Kwasi Kwarteng took a big swing with his mini-budget this morning (23 September).
Planned increases to Corporation Tax and the introduction of the Health and Social Care Levy, both planned for April 2023, were scrapped. The increases to national insurance and dividend tax from April 2022 are being reversed (NICs from 6 November 2022, dividend tax from April 2023). The 45p additional income tax rate has been scrapped, and the 1% reduction in the basic rate has been brought forward.
"This was a very bold mini-Budget, in which the Chancellor focused on growing the economy to reach a 2.5% trend growth rate, an ambitious level but one which is also a real gamble on the economy and public finances,” says Iain Wright, ICAEW’s Managing Director, Reputation and Influence.
“Businesses will be pleased with the pledges on investment and planning reform, but energy remains the biggest challenge. Although there’s certainty for the next six months, firms don’t know what will happen at the end of that period, and we hope the government will respond flexibly to provide support where needed.
“Whether the boldness in approach turns to recklessness remains to be seen. We will continue to work with BEIS and other government departments to raise and address any issues.”
The Chancellor repealed the off-payroll working rules that came into force in 2017. IR35 rules remain, returning to the previous rules in place between 2000 and 2017.
The Office for Tax Simplification will also wind down, as the Chancellor expressed his desire to embed a drive for simplification across the Treasury and HMRC. “It will be interesting to see their response in terms of the mandate to simplify the tax system, how to bring about change and embed simplification into their processes,” Frank Haskew, Head of Taxation Strategy at ICAEW, said.
The annual investment allowance, due to revert back to £200,000 on 1 April 2023, will permanently remain at £1m. This will be welcomed by business, says Haskew. “It will provide certainty in planning.”
All of these measures will result in more borrowing, says Alison Ring, ICAEW Director for Public Sector & Taxation. “Today’s announcements imply the deficit for the current financial year could now end up between £150bn and £200bn, while public sector net debt is now on course to exceed £2.5trn by next March. We will find out more once the Office for Budget Responsibility provides its next forecast.”
The £30bn-£50bn of annual tax cuts will put a big dent in the fiscal forecast over the medium-term, and the announcement was missing detail on public spending. This leaves a very big question unanswered, says Ring: “The extent to which these tax cuts will be matched by cuts in spending on welfare and public services.”
Suren Thiru, Economics Director for ICAEW, believes that the mini-Budget outlines some big economic risks. “The Chancellor’s eye-watering intervention is an astonishing gamble on the future of the UK economy and the public finances. Cutting taxes is unlikely to generate the extraordinary jump in growth needed to achieve their policy aim and could make matters worse by fuelling inflation, pushing interest rates higher and undermining our credibility with international investors.”
Businesses will be encouraged by the promise of supply side reforms, Thiru explains, including the long-awaited changes to the sluggish planning system, which are vital to sustainably boosting the country’s growth prospects.
“However, the subsequent declines in sterling and rise in government borrowing costs highlight the need for a credible plan on how this fiscal support will be paid for, which is key to maintaining international confidence and strengthening our economic prospects.”
Fiscal Event September 2022
Read ICAEW's analysis and reaction to the Chancellor's 23 September mini-budget.
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