A ‘mini’ budget full of big announcements

interactive investor comments on announcements made by Kwasi Kwarteng.

Myron Jobson, Senior Personal Finance Analyst, interactive investor, says: “It was a mini-Budget full of big announcements that promise to shake up the status quo when it comes to personal finances. A day after the government announced the reversal of the 1.25% hike in National Insurance, the chancellor pulled a number of rabbits out of the hat - with those at the higher end of the income spectrum benefitting most. Gone is the additional rate of income tax, while the 1p income tax cut has been bought forward and will now be implemented in April 2023, instead of 2024.

“With duty rates for beer, cider, wine, and spirits axed, the government will hope that consumers will raise a glass to one of the most significant rounds of tax cuts in recent times. However, there are question mark as to whether the measures goes far enough to help those most in need.

“When it comes to property, the increases in stamp duty thresholds are also significant. It is hoped that these measures will help first-time buyers and second steppers. But the measure could create more problems than they solve. The real issue is housing inventory – there are not enough homes to meet demand. Last year’s stamp duty holiday has shown us how effective the measure is in stimulating demand. The cost-of-living crisis has changed the landscape and together with rising interest rates, has compounded the affordability hurdle. However, the various house price indices paint a picture of a robust housing market. Fuelling demand for homes without addressing one of the key reasons for the red-hot housing market would serve to add coals to the flame.

“While the planned hike in corporation tax from 19% to 25% has been consigned to the bin, while 'Investment Zones' in England, with specific tax cuts and liberalised planning rules, have been announced. The case for making tax cuts now is that they could stimulate greater consumer spending and encourage more investment in UK businesses.

“The Chancellor of the Exchequer has announced the new era of governance with a bang, revealing more jaw-dropping measures and policies effecting personal finances. The tax cuts will help many in the here and now, but the longer-term impact of further public borrowing, already at the highest levels since the 1960s, and with rising rates pushing up borrowing costs, will take time to sink in.”

Alice Guy, Personal Finance Editor, interactive investor, adds: “The tax cuts will go some way to lifting the tax burden, currently at historically high levels, and will leave workers with more money to see them through a tough winter ahead.

“But tax cuts will benefit richer workers more than average earners. The income tax changes will benefit higher earners the most, saving someone earning £200,000 a massive £2,877 per year. Meanwhile, lower-paid workers on £20,000 will benefit by only £74 per year.”

Income tax changes

Source: interactive investor 

Commenting on the pound, Victoria Scholar, Head of Investment, interactive investor, says: “This was far from a mini-budget, with a whole raft of new tax cuts, borrowing plans, and investments being unveiled by the new chancellor Kwasi Kwarteng. The pound continues to slide against the US dollar, under pressure after the Kwarteng’s economic growth plan, shedding two-thirds of 1%. The UK government is planning to vastly increase its borrowing, as it unveils a £60 billion energy crisis plan and £45 billion in tax cuts. 

“Government borrowing costs have risen sharply - with UK gilt yields with a slump in British government bond prices, and a surge in yields this week. Sterling continues to come under pressure as the chancellor’s new plans and the Bank of England’s rate increases this week fail to ignite international investor confidence in the UK.”