The ‘mini-budget’: Tax cuts, energy caps and growth

23 September 2022   |   6 minutes read
Business leader on her laptop
Business leader on her laptop

Only just moved in to 11 Downing Street, Kwasi Kwarteng announced more than 30 new measures in his first big speech as Chancellor. 

Overall, Kwarteng’s Growth Plan (as it has been dubbed by the government) is defined by what it removes rather than adds. And for CFOs and other finance leaders, there was much to consider. Let’s take a closer look at the Chancellor’s speech. 

Small business owner? Here’s our roundup detailing how the mini-budget affects you >

A tax-cutting event 

The head of the Institute of Fiscal Studies described the mini-budget as the “biggest tax-cutting event since 1972”. 

As expected, the planned 1.25% increase in National Insurance Contributions for employers and employees was scrapped. Liz Truss made this reversal a cornerstone of her leadership campaign. Plans to increase dividend tax rates were also reversed. 

From April 2023, the basic rate of income tax will be cut to 19% (from 20%). A year earlier than initially planned. The additional rate of income tax – 45% for workers earning £150,000 or more – will be abolished on the same date.  

Among the other tax measures announced: 

  • Cancellation of the planned increase in corporation tax. It will stay at 19% 
  • A single higher rate of income tax of 40%, abolishing the 45% rate for those who earn over £150,000 from April 2023 
  • Planned beer, wine, cider, and spirits duty rate increases cancelled 
  • The cap on bankers’ bonuses has been lifted 
  • Sales tax-free shopping for overseas visitors 
  • The additional rate for savings, dividends and default rates will also be removed from April 2023. This change will apply UK-wide. 

The Chancellor also expanded on the 2021 ‘Freeport’ policy, with the creation of low-tax Investment Zones across 38 local and combined authorities in England. His speech also mentioned easing planning rules and new legislation to speed up the delivery of around 100 major infrastructure projects. 

Energy bills capped for six months 

When the government announced an energy price guarantee for consumers earlier this month, businesses were left out in the cold. Since there is no price cap on commercial energy prices, many UK businesses were left teetering on the edge. 

But the newly unveiled energy bill relief scheme (available from 1 October) will hopefully boost business certainty as we head into winter. The wholesale price for all non-domestic customers has been fixed at £211 per MWh (megawatt hour) for electricity and £75 per MWh for gas for six months.  

“This will provide a price guarantee equivalent to the one provided for households, for all businesses across the country,” the Chancellor said.  

According to the Department for Business, Energy & Industrial Strategy (BEIS), the supported wholesale price is less than half the wholesale prices that were expected. The new supported wholesale price also removes green levies paid by non-domestic customers. 

‘Breaking the cycle’ 

The overarching emphasis for the Growth Plan 2022 was, unsurprisingly, growth. Chancellor Kwarteng’s speech made 27 references to growth.  

“Growth is not as high as it needs to be,” the Chancellor said, “which has made it harder to pay for public services, requiring taxes to rise. This cycle of stagnation has led to the tax burden being forecast to reach the highest levels since the late 1940s. 

“We are determined to break that cycle. We need a new approach for a new era focused on growth. 

 “That is how we will deliver higher wages, greater opportunities, and sufficient revenue to fund our public services, now and into the future. That is how we will compete successfully with dynamic economies around the world.” 

With more certainty around energy bills for the next six months, finance teams can now focus on getting through this economic crisis. Watch our webinar with GenCFO ‘Controlling the Uncontrollable’ for advice and guidance on managing uncertainty.

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