This week’s ‘mini Budget’: Seven possible changes in the pipeline
Although policies and measures are yet to be confirmed, reports suggest several tax cuts will be announced.
The Chancellor is under a lot of pressure to deliver measures to help with the current economic crisis. Inflation dipped slightly in August but is still at a 40-year high. Meanwhile, interest rates are set to rise again this week, pushing up the cost of borrowing.
The Prime Minister Liz Truss has said she wants to cut taxes to promote economic growth. One of the first measures she introduced was an energy price guarantee, curbing average annual bills at £2,500 for the next two years. It was also confirmed that green levies would be removed on energy bills. More help with energy bills is also expected to be announced on Friday.
Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, said: “We’ll see a major change of direction in this mini-budget, as Kwasi Kwarteng drives his growth agenda, fuelled by deregulation and tax cuts, in the belief it will ease the cost-of-living crisis and boost growth.
“Tax cuts will help us all in the immediate future, cutting our outgoings during a time of runaway inflation. It is being done in the belief this will then help people spend more and companies invest more, both of which would support growth.
“There’s also the question of whether there will be enough in this announcement to support those on the lowest incomes, or to help us build our long-term financial resilience.”
Predictions for the mini-budget
Here’s what is rumoured to be announced on Friday:
1. Reverse National Insurance rise
In the Conservative leadership contest, Liz Truss said reversing the National Insurance (NI) rise from earlier in the year would be a priority. In April, the rate of NI increased by 1.25% for employees and employers. This increase was introduced as part of the Health and Social Care levy to fund the NHS and social care.
Rachael Griffin, tax and financial planning expert at Quilter, said: “The policy of scrapping the NI hike once in office was a popular one for Truss, given that it will have made an unwelcome dent in people’s take home pay over the past months, especially those feeling the cost-of-living squeeze who were facing energy price rises on the horizon.
“While Rishi Sunak had already partly reneged on the NI hike by increasing the NI threshold, a further Tory U-turn to remove the 1.25 percentage point increase would help to ease people’s financial worries even further. However, the impact will be paltry compared to any proposed cap on energy costs.”
2.Reverse corporation tax rise
Corporation tax is set to rise from 19% to 25% in April 2023. As the Chancellor and Prime Minister have repeatedly suggested that the government’s focus is to support business investment and growth, this rise may be scrapped.
3. Inheritance tax shake-up
There have been suggestions that the entire tax system will be reviewed, including the way that inheritance tax is paid.
4. VAT cut
There may be a reduction in the rate of VAT, from 20 to 15%.
5. Help for those on low incomes
Additional payments, via the Universal Credit system, or subsided energy tariffs, may be announced for those on low incomes. During the pandemic, the rate of Universal Credit was increased temporarily so this may happen again.
6. Scrapping the Lifetime ISA penalty
Some industry experts are calling for the penalty on the Lifetime ISA (LISA) to be axed. The current rules state that if you take money out of a Lifetime ISA for a reason other than buying your first home or for your retirement before you reach the age of 60, then you will face a penalty of 25%.
Helen Morrissey, senior pensions and retirement analyst at Hargreaves Lansdown, said: “While it may look like you are just giving up the government bonus, it also takes a chunk of the money you have saved. It means anyone turning to this money while life is tough will pay a horrible price for having tried to do the right thing. We want to see the LISA penalty reduced to 20%, to help people use their money in the way that makes most sense for them, without losing some of their own savings at a time when they can least afford it.”
7. Axing cap on bankers’ bonuses
It’s been suggested that Kwarteng will scrap the cap currently in place on bonuses for bankers in the City of London. It was first introduced in 2008 after the financial crisis. If the cap is axed it’s hoped more talent will be attracted to London.