On the 23rd September 2022, newly appointed Chancellor Kwasi Kwarteng headed up what has been dubbed a “mini-budget”. The event saw the Chancellor lay out proposals for a raft of dramatic economic changes, encompassing everything from income tax rates to rulings around universal credit and stamp duty.
This announcement has been met with intense scrutiny, with many of these proposed changes coming at a time of intense economic strain for the lowest income households across the nation. As the UK continues to contend with the squeeze brought about by the cost of living crisis, what are the implications of the Chancellor’s announcement for employers and their people?
Here are some of the outlined proposals from the 2022 emergency budget and what they may mean for your organisation and people:
Income Tax- A cut to the basic rate of income tax has been proposed to come into effect from April 2023. The rate will drop to 19% and has been touted as a way to support the lowest income households, particularly during a time of deepening economic crisis for many. The Government has claimed that slashing the rates in this way will mean 31 million people receiving an average of £170 more per year.
Current rates mean people in England, Wales and Northern Ireland pay 20% on any annual earning between £12,571 to £50,270.
A proposal to scrap the 45p tax rate for the highest income earners has now been reversed.
National Insurance rates change- The recent hike in National Insurance (NI) rates will 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 announced to help the NHS recover in the wake of the Coronavirus pandemic and to provide ongoing support from April.
The levy was initially proposed to raise around £13bn a year to fund social care and to help deal with a backlog in healthcare services that built up during the course of the pandemic. This move to scrap the increase means that the funding for these services will now come from general taxation according to the chancellor.
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.
Corporation Tax- A proposed hike on corporate tax previously announced during the 2021 budget has now been confirmed as scrapped. The increase, which will have seen the tax rate on company profits move to 25% from 19% has been halted by the new Chancellor, Kwasi Kwarteng.
The increase was initially touted by then Chancellor Rishi Sunak as a way for the largest earning businesses to help contribute towards the recovery of the post-Covid economy.
IR35 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 who will suddenly find themselves faced with a significant increase in their financial responsibilities and compliance demands.
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. The new rules will ensure transparency around the use of contractors or intermediary firms, but the changes do bring with it a greater burden for payroll and financial professionals who will have to ensure that their organisations remain compliant.
Chancellor Kwarteng has now confirmed as part of his mini budget that the rules around IR35 and off payroll working will now be simplified, with IR35 rules reverting back to their previous form.
There has also been clarification around investment legislation: Annual investment allowance, the amount companies can invest tax free, remains at £1m indefinitely. Whilst New and start-up companies able to raise up to £250,000 under scheme giving tax relief to investors.
Stamp Duty- Another notable announcement was a cut to stamp duty which is paid when purchasing a property in England and Northern Ireland. 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.
Energy Bills- Undoubtedly one of the most dominant themes throughout this year has been the ongoing cost of living crisis and the soaring cost of energy bills which threatens so many households as we move into the colder months.
Many people had already been waiting for an official government position on any support which was to be made available and it came as no surprise that Chancellor Kwarteng used his mini-budget as a platform to announce his first measures of help.
The Chancellor has announced a freeze on energy bills, with a price cap- called the Energy Price Guarantee which comes into effect on 1 October 2022.
This new scheme will 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.
The mini-budget has created waves in the wider market, with the introduction of new legislation and the repealing of some meaning that many organisations and individuals are still reconciling what the changes mean to them.
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.