New Chancellor Kwasi Kwarteng will unveil his mini-budget on Friday, with a focus on cutting taxes and attempting to stimulate growth.
It is the first economic proposal to be set out since Liz Truss became Prime Minister this month.
The Prime Minister told a press briefing in New York she was willing to take “difficult decisions” to drive economic growth and did not accept the argument that “cutting taxes is somehow unfair”.
“What we know is people on higher incomes generally pay more tax so when you reduce taxes there is often a disproportionate benefit because those people are paying more taxes in the first place”, Ms Truss told Sky News.
“We should be setting our tax policy on the basis of what is going to help our country become successful – what is going to deliver that economy that benefits everybody in our country.”
Here are the tax cuts that could be announced at today’s mini-budget.
When is the mini-budget?
The Chancellor will announce his mini-budget in the House of Commons on Friday 23 September, shortly after 9.30am.
There will be a live stream of the full announcement right here on this page.
What tax cuts could be announced?
Ms Truss made reversing the increase to national insurance (NI), which came into effect in April, one of the key policies of her leadership campaign.
The former chancellor Rishi Sunak oversaw a 1.25 percentage point rise in NI contributions – bringing them to 13.25 per cent, up from 12 per cent – to help fund the NHS and social care.
This is set to be scrapped, leading to an annual saving of £218 for someone earning £30,000, rising to £468 for someone earning £50,000. Workers with an annual salary of £20,000 would save £93 under the policy, while someone earning £80,000 would be £843 better off.
A 1p cut to the income tax rate may be brought forward. It was originally to have come into effect in 2024 under Mr Sunak’s plans.
This would amount to annual tax savings of £74 for workers earning £20,000, £174 for someone earning £30,000 and £374 for someone with a £50,000 pay packet. It would work out to a £674 and £874 saving for employees with an income of £80,000 and £100,000, respectively.
Ms Truss is also said to be keen on plans to raise the higher-rate threshold for income tax in England and Wales to £80,000 from £50,720, something Boris Johnson pledged in 2019.
That would result in a significant saving for middle-to-high earners, says Myron Jobson of investment platform interactive investor.
“The highest earners could be in line for the biggest savings if the higher income band threshold is raised to £80,000,” he explained. “Someone who earns £80,000 would save £7,463 from the reversal of the 1.25 per cent uplift to NI, the 1p income tax cuts and the raising the income tax threshold to £80,000 – rising to £7,913 for someone earning £100,000.”
The Chancellor is set to axe the planned increase in corporation tax from 19 per cent to 25 per cent from April next year.
Ms Truss already confirmed that the rise would be scrapped during her visit to New York this week.
Ditching this tax alongside the national insurance rise will cost the Treasury £30bn a year.
VAT could be cut from 20 per cent to 15 per cent across the board.
A temporary reduction in the rate of VAT applied to hospitality and leisure may also be announced, as well as cutting VAT from energy bills.
- £0 – £125,000 = 0 per cent
- £125,001 – £250,000 = 2 per cent
- £250,001 – £925,000 = 5 per cent
- £925,000 – £1,500,000 = 10 per cent
- £1,500,000 and over = 12 per cent
The average stamp duty that a homebuyer pays is currently £8,258, based on the average asking price of £365,173, according to Rightmove.
It is unclear by how much the Government is planning to cut stamp duty.
On the face of it, cutting stamp duty is a good thing for people planning to buy houses, as it means they pay less tax on their purchase, making the home more affordable.
However, the proposition has been widely criticised by industry experts who believe cutting stamp duty will push up house prices, by further fuelling the property market – and will therefore increase people’s mortgages.
Lewis Shaw, founder of Mansfield-based Shaw Financial Services, told The Guardian: “It’s bovine short-termism at its worst. 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.”
A stamp duty holiday introduced by Mr Sunak during the pandemic saw the average UK house price jump by 15.5 per cent annually in July, according to the Office for National Statistics (ONS) – the biggest increase in 19 years.
Sarah Coles, a senior personal finance analyst at Hargreaves Lansdown, told the Evening Standard: “You can see why the Government is concerned about the housing market, because there’s a risk that rising mortgage rates and rising prices will dampen buyer enthusiasm. We know from recent experience that a stamp duty holiday effectively stimulates demand.
“No buyer will ever complain about a tax cut, but if the Government was to cut stamp duty it would mean ignoring the fact that the real brake on the property market is a severe shortage of supply.
“Stimulating demand without addressing supply problems would risk more buyers chasing a tiny number of properties, which would push prices up. It’s what we saw during the coronavirus-inspired stamp duty holiday.”