The new Chancellor of the Exchequer, Jeremy Hunt, has today, Monday, 17th October 2022, announced his intention to make a broad range of reversals to recent economic policy changes, first introduced by his predecessor Kwasi Kwarteng, three weeks ago.
Kwasi Kwarteng, who has exited the office of Chancellor after holding the position for 38 days, had laid out proposals for a raft of dramatic economic changes, encompassing everything from income tax rates to rulings around universal credit and stamp duty.
Many of those announcements were met with mixed reactions, particularly in the global markets, which have seen the pound tumbling in value over the past few weeks. In his first major statement as Chancellor, he has announced the repeal of many of those changes.
So what exactly did Chancellor Hunt have to say in his statement and how is it set to affect employers and their people?
Income Tax- The Chancellor announced that the basic rate of income tax will stay at 20% indefinitely. The rate was set to drop to 19% and had been touted as a way to support the lowest income households, particularly during a time of deepening economic crisis for many.
The rate drop had been announced by the two previously serving Chancellors and comes alongside other U-turns on policy around taxation- a proposed abolition of the 45% additional rate of tax payable by those earning more than £150,000 per annum, had already been ruled out ahead of this statement.
Other taxes - A proposed increase in so called “sin taxes” for beer, wine and spirits will now also go ahead despite previous plans to scrap it.
Off payroll IR35 reforms and other investment rules- The Government’s decision in 2021 to extend the existing IR35 rules to the private sector has been a cause of concern for many organisations.
The legislation is designed to mitigate instances of tax avoidance whereby organisations could take advantage of gig economy workers and other similar contractors by having them do the equivalent work of a salaried employee but with fewer HMRC contributions.
Chancellor Kwarteng had announced a simplification of the rules around IR35 from April 2023, with many of the latest reforms being repealed. The new Chancellor has instead put a stop to this and announced that the existing IR35 legislation will remain in place.
Reduced Energy crisis support- In his emergency budget, then Chancellor Kwasi Kwarteng, announced a freeze on energy bills, with a price cap- called the Energy Price Guarantee, set to come into effect on 1 October 2022.
This scheme would reduce the unit cost of electricity and gas so that a household with typical energy use in Great Britain pays, on average, around £2,500 a year on their energy bill, for the next 2 years.
In his statement, the new Chancellor has instead announced plans to scale back the amount of support the public can expect to receive with their energy bills. Current support will remain in place until April 2023 at which point it will be subjected to a review. Chancellor Hunt has said that instead he intends for there to be a “new approach” taken, which will be focused on targeting those most in need.
Spending cuts- Despite confirming a rise in rates for major benefits such as Universal Credit, the new Chancellor hasn’t ruled out the possibility of cuts to public services or further changes to tax rates, claiming that “difficult decisions” will have to be made regarding spending.
What’s left?- Of the emergency budgets which are still left standing, the most prominent is the upcoming changes to National Insurance (NI) rates, which will still be reversed this coming November. The National Insurance increase was introduced back in April 2022 by then Chancellor, Rishi Sunak and was dubbed a “Health and Social Care Levy” with the increased rate ring fenced to fund health and social care services. The levy was ostensibly announced to help the NHS recover in the wake of the Coronavirus pandemic and to provide ongoing support from April.
The Treasury has said that the reversal of the increase is set to save nearly 28 million people an average of £330 per year. The change has been motivated by the ongoing cost of living crisis, with the government being put under increasing pressure to provide support, particularly for the hardest hit households.
The cut to stamp duty which is paid when purchasing a property in England and Northern Ireland is also set to still go ahead.. The changes now mean that stamp duty isn’t paid up until the first £250,000 of a property’s worth- or up to £425,000 for first time buyers.
The government have touted it as a money saving measure for many on the property ladder, claiming the changes will take 200,000 people out of the need to pay stamp duty.
There is little doubt that today’s statement by the new Chancellor will have been followed closely by many across the country. The emergency budget just a few short weeks ago has already dramatically impacted both employees and their organisations across the country and it remains to be seen how the broad repeal of those measures is set to affect the markets.
In light of the cost of living crisis, many of these measures could be the make or break point which helps support households throughout a difficult winter. The changes in support for energy bills and the potential for further cuts to public spending will also no doubt be a cause for concern for many businesses who are already posed with the difficult prospect of safeguarding the financial wellbeing of their employees.
For more information on the cost of living crisis and how it may impact your people, why not download our free guide, which offers some key, actionable steps businesses can take in order to help safeguard their employees.