Overwhelmed? Confused? Here’s what our new Chancellor of the Exchequer’s mini-budget means for you
In case you forgot – what with the Queen dying and Putin threatening to blow up the world – we actually have a brand new Prime Minister and Cabinet here in the UK.
Our new Chancellor of the Exchequer is Kwasi Kwarteng (yes, the same man who looked like he’d treated himself to a smidgeon of meth before Her Majesty’s funeral), and that means we’re getting some brand-spanking new economic policies.
Kwarteng announced his ‘mini-budget’ this morning in the Commons, and unless you’re a banker, homeowner, and/or unbelievably wealthy, it’s not looking good. Liz Truss’s government has unveiled this morning the most radical UK tax cuts in 50 years, scrapping the top rate of income tax as well as the cap on bankers’ bonuses. Basically, if you thought we couldn’t possibly get a worse chancellor than Rishi Sunak – do we have a surprise for you!!!
Here, we break down some of the key points from Kwarteng’s new mini-budget.
One of the most pressing issues facing the country is rising energy bills – recent reports suggest that bills could reach as high as £6,500 next year. Kwarteng began his announcement in the Commons by levelling the blame for soaring energy bills at Putin’s continued war in Ukraine – and while the war is a large reason why oil and gas prices have soared, Kwarteng neglected to acknowledge that the Conservative party had been slow to respond to the crisis. In fact, Kwarteng went as far as saying Prime Minister Liz Truss had acted with “great speed”.
Today Kwarteng announced that he will spend £60bn in the six months from October on a support package to help the public with energy bills. “People need to know that help is coming,” he said. “And help is indeed coming.”
The plan to cap annual household energy bills at £2,500 will cost £31bn in the six-month period, and the plan to slash businesses’ bills in half will cost around £29bn. A £2,500 cap on household energy bills and existing £400 discount will cut average bills by an expected £1,400 this year, the chancellor added.
It’s still unclear who will foot the bill for this. Kwarteng has stressed that “growth” will pay for it, but it’s unlikely that “growth” will be enough. Instead, it’s likely that the young and the poor will be expected to stump up to cover the costs later down the line, if Kwarteng’s other measures are anything to go by.
A budget truly for the 1%. Abolishing the 45p rate of tax benefits the richest 1% in our society. Combined with lifting the cap on bankers’ bonuses and threatening to cut the benefits of the unemployed this forms the most socially divisive budget in a generation.— John McDonnell MP (@johnmcdonnellMP) September 23, 2022
INCOME TAX CUTS
Kwarteng has announced the additional rate 45 per cent band for income tax will be scrapped entirely, the 40 per cent higher rate will remain, the national insurance rise introduced earlier this year will be cancelled from November 6, and the basic rate of income tax will be cut in April from 20 per cent to 19 per cent. These are the most radical tax cuts seen in the UK in 50 years.
Essentially, with this reduction in income tax plus the reversal of the National Insurance rise, Kwarteng is helping the rich get richer. Those earning over £150,000 will now pay tax at the same rate as those on £50,000. According to Kwarteng, this is to “reward enterprise and growth”.
According to analysts at EY, a person earning £20,000 a year will save £167. Meanwhile, a person with an income of £40,000 will save £617. A person with earnings of £60,000 will save £969 and a person on £100,000 will get an extra £1,469.
Additionally, a graduate earning £50,000 will pay a higher marginal rate (51 per cent) than someone on £150,000 (42 per cent). A graduate earning £25,000 will pay a 40 per cent marginal rate, just 2 points less than top earners.
John McDonnell, Labour MP and former Shadow Chancellor tweeted that this was a budget for the top 1 per cent in society. “Abolishing the 45p rate of tax benefits the richest 1 per cent in our society. Combined with lifting the cap on bankers’ bonuses and threatening to cut the benefits of the unemployed this forms the most socially divisive budget in a generation,” he said.
Anyone on Universal Credit should expect a rise in what they receive, to balance rising living costs due to inflation. However, this will only be introduced in April, and multiple charities have called for this rise to come earlier.
Kwarteng has also suggested he will cut benefits for those who do not adequately search for work. “We’ll ask around 120,000 more people on Universal Credit to take active steps to seek more and better-paid work, or face having their benefits reduced,” he said. Certain claimants, such as those with disabilities, will be exempt.
The move is intended to fill job vacancies, with many industries facing chronic shortages. But the Institute for Employment Studies has said that ministers have misunderstood the factors behind the labour shortage and that the Government’s plan for Universal Credit could actually push people out of work. This will also disproportionately impact single mothers, as 3 in 4 part-time workers are women, often with caring responsibilities.
Others have warned that threatening people on benefits does not incentivise people to find work and can damage their mental health – which, ironically, makes it even harder for people to find stable employment.
The decision also suggests that ministers believe that if you’re unemployed, you could and should do literally any available job. But obviously if you’ve only previously worked as a nurse and have no driving licence, it’s unlikely you’ll feel passionate about or be good at working as, say, an HGV driver. Basically, according to Kwarteng, doing a job you find fulfilling is only for rich people x
This morning Kwasi Kwarteng announced:— Nadia Whittome MP (@NadiaWhittomeMP) September 23, 2022
- Benefit cuts for part-time workers
- More attacks on trade union rights
- Tax cuts for the top 1%
- Lowest corporation tax in the G20
- Uncapped bonuses for bankers
The only thing this #BankersBudget will grow is inequality.
‘Stamp duty holidays’ are often used by governments to encourage activity in the housing market. The idea is that people also spend money on things like home improvements when moving house, which in turn boosts economic growth.
Kwarteng announced this morning that stamp duty will be permanently cut for property buyers in England and Northern Ireland. In the current system, there is no stamp duty to pay on the first £125,000 of a property’s value – this will be doubled to £250,000. First-time buyers currently pay no stamp duty on the first £300,000, and that will be raised to £425,000. Discounted stamp duty for first-time buyers will apply up to £625,000, an increase from the previous £500,000.
While this sounds good on paper, experts have warned that the movie will hurt first-time buyers and add fuel to the fire as house prices rise at the fastest rate for almost 20 years. “It’s bovine short-termism at its worst,” Lewis Shaw, the founder of Mansfield-based Shaw Financial Services, told the Guardian.
“This move will push house prices even higher, worsening inflation and further pricing first-time buyers out of homeownership. If someone asked me how to drive an already overheated property market into dangerous bubble territory and make things worse for everyone, this policy would be it,” he added.
Plus, stamp duty is paid by buyers, not sellers – meaning that Kwarteng has once again done nothing to really help those at the bottom of the property ladder, and instead chosen to protect wealthy homeowners.