What Does the Mini-Budget Mean for Me?
Now that Chancellor Kwasi Kwarteng has made the announcement of the mini-budget on Friday, it’s important to take a look at the implications this will have on the wider public. With low and medium earners affected most by the cost of living and energy crises, the mini-budget isn’t necessarily good news.
The price of food and energy has been growing ever stronger and the government has been implementing changes to try and mitigate the effects. Thanks to the actions currently taken, the looming recession shouldn’t be as bad as previously predicted. However, according to the Institute for Fiscal Studies, the average earner will see a £600 drop in real income this year.
What’s Been Announced?
The previously proposed cut in the basic rate of income tax is being brought forward by a year and is now happening in April 2023. This means that an average 31 million people will save around £170 a year in tax reduction.
One of the most controversial actions has been the proposed abolishment of the 45% additional rate of tax for the new tax year. This is paid by people who earn more than £150,000. It equated to tax savings of almost £3,000 a year for someone earning £200,000.
This means that the top rate of tax will now be 40%, for people earning over £50,270. On top of this, the cap on bankers’ bonuses has been lifted. In the wake of the cost of living, these seem like poor, nonsensical decisions. Higher tax earners are getting a massive tax break while everyone else is suffering from higher prices and unaffordable energy bills.
All the Details
Basic rate of income tax cut by 1p to 19p
Scrapped 45% top rate of tax
1.25% rise in National Insurance to be reversed from November 2022
Stamp duty band has risen to £250,000 (and up to £425,000 for first time buyers)
Scrapped cap on bankers’ bonuses
Scrapped planned rise of 6% in corporation tax
Planned increases in duty rates to beer, cider, wine and spirits cancelled
How Much Will I Receive?
Anyone on benefits, like universal credit, should receive more, but not until next year, owing to the rise of inflation. Kwarteng also wants to cut benefits for those who don’t adequately search for work, which will reduce benefits for at least 120,000 people. With one hand, he’s giving to the rich and with the other, he’s taking from the poor.
In terms of National Insurance, we will all receive a discount, but it depends on how much you’re currently earning. The biggest savings are to those earning the most. On average, nearly 28 million people will have £330 a year more in their pockets.
The money raised from this was meant to go to health and social care, which we are in desperate need of. Instead, general taxation will fund this now.
If you take the income tax reduction and the National Insurance cut together, according to accountancy firm EY, you’ll see the following savings a year:
Anyone earning £20,000 will save £167
Those earning £40,000 will save £617
Someone earning £60,000 will save £969
A person earning £100,000 will save £1,469
What’s worrying is how this mini-budget has plummeted the value of the pound. Announcements in the reduction in tax and the sheer scale of government borrowing has caused the pound to fall to its lowest level against the dollar in history. Unfortunately, this will affect prices weighed against the dollar, like petrol.