New Chancellor of the Exchequer Kwasi Kwarteng has today unveiled the biggest package of tax cuts for the UK in 50 years, including some major reforms and tax reliefs for businesses.
Addressing Parliament this morning (23 September), Kwarteng claimed growth is currently “not as high as it should be”, arguing there are “too many barriers for enterprise”. Promising “a new approach for a new era”, the government has set an ambitious growth rate target of 2.5% in the medium term, claiming this will deliver sustainable funding for public services and improve living standards.
“Our plan is to expand the supply side of the economy through tax incentives and reform,” Kwarteng said.
“That is how we will deliver higher wages, greater opportunities and crucially fund public services, now and into the future. That is how we will compete successfully with dynamic economies around the world.”
He added the government will focus on growth “even when it means taking difficult decisions”.
The unveiling of the mini-budget comes as the UK continues to face staggering inflation. According to the Office for National Statistics, inflation eased fractionally in August, falling from an annual rate of 10.1% in July to 9.9%. However, it remains close to the highest rate in 40 years.
So what does Kwarteng’s growth plan mean for brands? Here are the key takeaways:
1. Corporation tax rise cancelled
Next year’s planned rise in corporation tax has been cancelled, leaving it at 19% for all businesses, regardless of the amount of profit made.
Under the plans of the previous government, corporation tax was to rise to 25% from April 2023 for firms making more than £250,000 profit, approximately 10% of actively trading companies. Companies making between £50,000 and £250,000 profit would have paid between 19% and 25% depending on the amount of profit made, and the 70% of actively trading companies making profits of £50,000 or less would have continued to pay 19%.
By cancelling the tax rise, the UK’s corporate tax rate remains the lowest in the G7, which includes the US, France, Germany, Italy, Canada and Japan, and the lowest in the G20.
The government argues that competitive business taxes will grow the economy by incentivising investment and enterprise.
2. £60bn to be invested in energy bill relief
With energy bills for businesses and households spiralling amid the invasion of Ukraine, Kwarteng outlined an energy package which is expected to cost £60bn over the next six months.
The energy bill relief scheme aims to halve the cost of business energy bills by providing a discount on wholesale gas and electricity prices, to protect firms from rising costs this winter.
Meanwhile an energy price guarantee will be introduced to assist households. According to Kwarteng, the price guarantee will limit energy bills for the typical household to £2,500, which he said will save each household £1,000 a year on their energy bill over the next five years. Vulnerable households are to receive additional payments.
The government is also introducing an energy markets financing scheme, which aims to support energy traders by offering emergency liquidity.
Kwarteng claimed this energy plan will reduce peak inflation by around five percentage points.
3. Further significant tax reforms
Other major tax reforms for businesses announced today include reversing the 1.25 percentage point rise in National Insurance contributions. The government claims this will save 920,000 businesses almost £10,000 on average next year.
The annual investment allowance is to become £1m permanently instead of reverting to £200,000 in March 2023, giving 100% tax relief to businesses on their plant and machinery investments up to the new limit.
Sector specific support has been announced for pubs and hospitality firms, with alcohol duty frozen for another year and plans to modernise alcohol duties to be taken forward.
Kwarteng has also abolished the additional rate of tax in favour of a single higher rate of income tax of 40%, taking effect from April 2023. The policy removes the UK’s previous top rate tax, and according to the Chancellor, is designed to attract talent to the UK workforce and help businesses to innovate and grow.
4. ‘Investment Zones’
The government is currently in discussion with 38 local and mayoral combined authority areas in England to set up ‘Investment Zones’, including Tees Valley, South Yorkshire and West of England.
These zones will offer “generous, targeted and time limited” tax cuts for businesses and will become “hubs for growth”, with the aim of encouraging investment in new shopping centres, restaurants, apartments and offices.
5. Unlocking private investment
Kwarteng also announced new measures to unlock private investment, with plans to increase investment by pension funds into UK assets. This will benefit savers and boost economic growth, and incentivise investment into the nation’s science and technology companies, he claimed.
The Chancellor said the government will set out further details of plans in the coming weeks, which include ramping up digital infrastructure, reforming business regulation, making childcare cheaper, and supporting financial services.
6. No mention of business rates
However, the Chancellor’s growth plan statement did not include any indication of changes to the upcoming 10% rise in business rates next April.
According to the British Retail Consortium (BRC)’s chief executive Helen Dickinson, this rise will put an additional £800m in “unaffordable tax rises” on “already squeezed” retailers.
“It is inevitable that such additional taxes will ultimately be passed through to families in the form of higher prices,” she argues.
“There is still time for the government to act. Freezing the business rates multiplier will stimulate investment and will allow retailers to focus on what’s important – keeping prices down for households.”
The unveiling of the mini-budget comes following another drop in UK consumer confidence this month, with the latest GfK Consumer Confidence Index revealing confidence has plummeted to a new low for the fourth time in five months.
Consumers’ pessimism towards both their personal finances and the general economy over the coming year are especially stark, with a nine point drop in the personal finance score since August to -40, and an eight point drop in the general economic situation to -68.