The new UK Chancellor of the Exchequer, Jeremy Hunt, has announced a reversal of almost all of the tax measures laid out in his predecessor’s mini-budget three weeks ago (details of which can be found here).
This ‘U-turn’ is aimed at bringing an end to three weeks of turmoil, which culminated with the dismissal of Kwasi Kwarteng as Chancellor after his unfunded tax cuts were blamed for spooking the markets and driving up the cost of borrowing. These policy reversals are therefore principally designed to reassure the markets and restore confidence in the UK government’s commitment to fiscal discipline.
Today’s announcement follows recent decisions to increase corporation tax to 25% in April 2023 (rather than maintaining it at its current rate of 19%) and to retain the 45% rate of income tax for those earning in excess of £150,000 per year.
The following tax policies have now also been reversed:
- Cutting the basic rate of income tax to 19% from April 2023. This will remain at 20% indefinitely, until such time as economic conditions are more favourable.
- Cutting dividends tax by 1.25% from April 2023.
- Repealing the reforms to the IR 35 off-payroll working rules.
- Introducing the new VAT-free shopping scheme for non-UK visitors to Great Britain.
The total value of these changes is estimated to be in the region of £32 billion. Cuts to stamp duty and national insurance will remain in place, representing what little there is left of the mini-budget’s wide-ranging tax reforms.
While it is clear that the government can no longer rely on tax cuts to grow the economy, the growth agenda has not been completely abandoned. So far, there has been no rebuttal of the policies regarding investment zones. In addition, the tax review announced in the mini-budget is to proceed, in which the tax system will be examined for ways in which it can better promote growth and investment.
Detail on tax measures remains very light, for example there has been no comment yet on a proportionate reduction to the bank levy given that corporation tax will be increasing, although we speculate that this may reflect the government’s desire to avoid mentioning anything with the aesthetics of a tax cut today, and would expect such a proportionate reduction to take place.
Today’s announcement was, in effect, an emergency statement and we expect a fuller, more comprehensive announcement on UK tax policy in the coming months, assuming the government can stabilise the very turbulent political environment. In our last post, we noted that the mini-budget had split economic and political opinion. That split has been resolved speedily in favour of the doubters.