What was in the mini-budget and what’s changed?

To kick off the new Conservative government, Liz Truss and now-former Chancellor Kwasi Kwarteng announced planned changes to try and improve the UK economy in what became known as a “mini-budget”. But how have recent events and U-turns changed the mini-budget?

What was in the original mini-budget?

Several tax changes were announced within the mini-budget. The plans included a major shake-up of the income tax bands, which dictate what percentage of income tax an individual must pay on their employment or self-employment income.

It was announced that the lowest income tax rate of 20% was to be cut to 19%. This is the rate applied to an individual’s earnings between £12,571 and £50,270. The Government estimated that this would give around 31 million people an additional £170 per year.

The more controversial planned change was to completely abolish the very highest income tax band of 45%, which is known as the “additional rate” and applied to earnings above £150,000 per tax year. This would mean the wealthiest earners would pay 40% income tax on all of their earnings above £50,271, rather than 40% on earnings between £50,271 and £150,000 and 45% on earnings thereafter.

The Truss Government also decided to significantly increase corporation tax from 19% to 25%. This is the rate of tax applied to company profits.

Several other changes were also announced within the mini-budget but were often overlooked due to the controversial tax changes. One of these other changes included a decrease in stamp duty which is paid when you buy property. You will no longer have to pay stamp duty on the first £250,000 spent on property, which increases to £425,000 for first-home buyers.  

Response to the mini-budget

The response to the mini-budget was overwhelmingly negative. As news broke and investors dissected the Truss Government’s plans, financial markets began to nosedive. The value of Sterling decreased significantly with whispers it could even reach parity against the US dollar.

Moreover, the interest rate on UK Government gilts increased, which is what dictates the interest applied to the UK’s debt. The Bank of England had to step in and start buying the bonds itself to calm the markets, which proved somewhat effective. The court of public opinion was also negative, with most people focusing on and outraged by the planned tax cut for the wealthiest earners in society.   

How has the mini-budget changed?

The reaction to the mini-budget was so negative that Liz Truss was facing the shortest and arguably most embarrassing premiership in history. She took action and sacked Chancellor Kwasi Kwarteng and instated Jeremy Hunt in his place. However, calls for her own resignation remain.

There have been a number of changes to the original mini budget so far. The Government will now retain the additional tax rate of 45%, meaning the wealthiest in society won’t be getting a tax cut. Moreover, the corporation tax increase will be going ahead in April 2023, going from 19% to 25%.

October 2022