What the recent Growth Plan and Government U-turns mean for you and your finances
Now that the dust has started to settle, what do the recent announcements, and U-turns, mean for you and your finances?
What is still happening
The National Insurance contribution rate will fall from 6 November 2022.
In April 2022, the National Insurance contribution (NIC) rate increased by 1.25 percentage points to pay for additional health and social care services. In April 2023, a new Health and Social Care Levy was set to replace this rise.
In the Growth Plan in September, it was announced that this rise would be reversed from 6 November 2022 – and this will still happen. So, from 6 November 2022, you will pay a lower rate of NI.
The Treasury has said the change will save nearly 28 million people an average of £330 per year. However, the impact varies considerably depending on what you earn.
This measure will also help you if you run a business. The Treasury say that 920,000 businesses will see an average tax cut of £9,600 in 2023/24.
Stamp Duty has been cut
To stimulate the housing market and to help more people get onto the property ladder, Stamp Duty was cut with immediate effect. Two key measures came into force on 24 September 2022:
The threshold at which Stamp Duty becomes payable rose from £125,000 to £250,000. If you’re moving home, the rise in the threshold will save you £2,500 if you are buying a house valued at more than £250,000.
The threshold at which first-time buyers will start paying Stamp Duty rose from £300,000 to £425,000. The value on which first-time buyers can claim relief increased from £500,000 to £625,000. If you are a first-time buyer paying £400,000 for a property, the cut equates to a £5,000 saving.
The table below shows the savings you would make thanks to the threshold rise, assuming you are not a first-time buyer:
Property purchase price
Previous Stamp Duty charge
Stamp Duty charge after 23 September 2022
If you’re buying a second home (for example, a holiday home or buy-to-let) you’ll normally pay a 3% Stamp Duty surcharge, but you’ll still benefit from this reduction.
Note that these changes apply in England and Northern Ireland. The devolved governments in Scotland and Wales will make their own decision about whether to pass on cuts in due course.
What is no longer happening
Income Tax cuts to basic and additional rate no longer proceeding
Two Income Tax measures were announced in the Growth Plan:
Bringing forward a 1p cut in the basic rate, meaning the basic rate of Income Tax would reduce to 19% in April 2023.
The abolition of the 45% additional-rate tax band.
Both these tax cuts have been scrapped along with confirmation that the basic rate of Income Tax would remain at 20% “indefinitely, until economic circumstances allow for it to be cut”.
The Telegraph reports that reintroducing the 45% tax band means someone earning £200,000 will be £2,500 a year worse off, while someone on £180,000 will miss out on £1,500 in tax savings.
The Times reports that the reversal means someone earning:
£15,000 a year will miss out on future savings of £24 a year.
£30,000 will forego a saving of £174 a year.
Just over the higher-rate threshold, will miss out on a £377-a-year tax cut.
The BBC reports that, overall and for a typical household, all these policies taken together will mean tax cuts of £290, rather than £500, driven by the scrapping of the rise in NI.
For the wealthiest 10% of households, tax cuts have been reduced from £5,380 to £1,650.
Dividend Tax will remain at its current level
The Dividend Tax rates for basic- and higher-rate taxpayers would have been reduced by 1.25 percentage points, and the additional-rate Dividend Tax rate would have been abolished alongside the 45% Income Tax band.
This decision has also been reversed which means dividend taxation will remain at the current rates of 8.75%, 33.75% and 39.35% for basic-, higher- and additional-rate taxpayers respectively.
If any part of your income is in dividends – perhaps from shares or as a company director – you will continue to pay these higher rates of tax.
Corporation Tax will still rise in April 2023
The Corporation Tax rise, planned for April 2023, was set to no longer proceed in order to “maintain a competitive business tax regime, which will support investment, innovation and economic growth in the UK”.
This policy was also reversed on 17 October with confirmation that Corporation Tax will rise to 25% in April 2023 as previously planned. So, depending on how much profit you generate in your business, your tax bill may rise in April 2023.
The Times reports that this measure is set to raise £18 billion for the Treasury.
2-year support for energy bills restricted to 6 months
In one of the more surprising announcements, the government’s flagship policy to support households facing rising energy costs was stripped back.
One of Liz Truss’s first priorities as prime minister was to shield households from planned Ofgem price cap rises. Truss superseded Ofgem’s 1 October price cap of £3,549 with her “Energy Price Guarantee” (EPG) that meant the average annual bill would only be £2,500. She said this guarantee would last for two years.
However, this too has been scaled back to last only until April 2023. A Treasury-led review into how the Government can support energy bills beyond April next year will take place. The review’s objective is to design a new approach that will cost the taxpayer significantly less than planned whilst ensuring enough support for those in need.
Consequently, on 1 April 2023, your bills will likely revert to being determined by Ofgem’s price cap and wholesale energy prices.
According to Sky News, this will see the average household pay £4,347 a year for gas and electricity from April 2023, instead of the promised £2,500.
How can we help you?
Get in touch with us so that we can work with you to understand the impact of the u-turns and reversals. We’ll ensure we translate all the changes so you can see how your finances will be affected.
HM Revenue and Customs practice and the law relating to taxation are complex and subject to individual circumstances and changes which cannot be foreseen.