Following on from his reversal of the plan to scrap an increase in Corporation Tax at the end of last week, Chancellor Jeremy Hunt has now reversed almost everything announced within the mini-Budget in an attempt to calm the markets.
The measures reversed by the new Chancellor include the cut in the basic rate of income tax, which will remain at 20p “indefinitely”; the removal of recent IR35 rules; cuts to dividend tax rates; and VAT shopping for tourists. The cuts to stamp duty and national insurance contributions remain in place.
In total, the reversals will raise £32bn a year. While the Energy Price Guarantee remains in place, it will now last in its current form until April 2023, rather than for two years, at which point the approach will be reviewed.
“The situation for businesses remains much the same, but the removal of two-year support for households at a time when mortgage rates have risen, is likely to hurt consumer confidence and see a knock-on effect in cooler demand,” says Simon Gray, ICAEW’s Head of Business. “Although the initial market reaction has been positive, which hopefully brings some stability at least in the short-term, many questions remain as to what happens from April 2023 onwards and when this will be announced.”
The Chancellor also announced “more difficult decisions” on tax and spending in the medium term and said that all departments need to redouble efforts to find savings. Some areas of spending will need to be cut, he said.
“But as I promised at the weekend, our priority in making the difficult decisions that lie ahead will always be the most vulnerable and I remain extremely confident about the UK’s long-term economic prospects as we deliver our mission to go for growth.”
Investment Zones remain in place, with the Chancellor pledging in the debate following the statement that they will be introduced while also “learning from the mistakes of the past”. He also pledged his support for the Bank of England and the Office for Budgetary Responsibility (OBR) and promised an OBR forecast for his plans for his fiscal statement at the end of October. He said that any difficult decisions on tax and spending would be made “as compassionately as possible”.
Alison Ring, ICAEW Director for Public Sector and Taxation, welcomed the commitment to ensuring public finances are sustainable.
“The Chancellor rightly acknowledges that families and businesses need stability, and that our public finances must be sustainable. Today’s announcement has reduced some fiscal ambiguity and helped calm the markets, but economic uncertainty remains.
News that the energy price cap protection will now end in April will worry many households, she adds. “Recent events have highlighted the absence of a long-term fiscal strategy to put the public finances on a sustainable path. It’s vital that October’s fiscal plan does more than just stabilise a fragile situation. The UK needs a credible plan that restores public and business confidence, strengthens the public balance sheet and builds resilience, and delivers much needed investment in infrastructure, skills and economic development.”
Aftermath of September's Fiscal Event
Read ICAEW's analysis and reaction to the 23 September mini-budget and the new Chancellor's statement of 17 October, confirming plans to reverse most tax cuts and scale back energy price support.
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