Chancellor Kwasi Kwarteng has unveiled his first mini-Budget which included cutting income tax for the highest earners.
Not only did he scrap the 45 per cent additional income tax rate, he also brought forward the decision to cut the basic rate to 19p in the pound.
A raft of other measures, worth around £45 billion, were also announced including a stamp duty cut and the abolishment of a cap on bankers bonuses.
i has rounded up all of the key takeaways from the mini-Budget.
Income Tax: Mr Kwarteng has scrapped the top rate of income tax for the highest earners.
He is getting rid of the 45 per cent additional income tax rate, which is applied to those earning £150,000 and over, making 40 per cent the highest rate threshold, which has to by paid by those earning more than £50,271.
The government also announced it was bringing forward the planned cut to the basic rate to 19p in the pound a year early to April.
The basic rate of income tax will be cut from 20p next year, a decision that will likely benefit those on the highest salaries.
Corporation tax: The Chancellor also confirmed the government is scrapping a planned increase to the amount of tax companies pay on their profits.
Corporation tax had been due to rise from 19 per cent to 25 per cent but this has now been cancelled.
Mr Kwarteng said this means the UK will have the lowest rate of corporation tax in the G20.
Stamp Duty cut
Mr Kwarteng also announced a major stamp duty cut, scrapping stamp duty on property purchases up to £250,000, doubling from the current level of £125,000.
There will also be no stamp duty for first-time buyers, up to a value of £425,000. Mr Kwarteng said this will take 200,000 people out of paying stamp duty altogether.
The change is effective as of today.
The cap on bankers bonuses has been scrapped, with the Chancellor claiming all this had done was push up the salaries of bankers and encourage others to move their business to other parts of Europe.
This cap was first introduced across the EU in 2014 after the 2008 global financial crisis.
Under the present rules, a banker’s bonus cannot be higher than twice their annual salary – unless shareholders agree.
It has already been announced that the 1.25 percentage point national insurance rise will be reversed from 6 November.
The tax increase was only introduced from April, to fund health and social care, but Liz Truss had pledged to scrap the rise during her campaign to become the next Tory leader.
Her Chancellor has now confirmed the rise will be ditched and national insurance (NI) contributions return to their 2021-22 levels from 6 November – in just over six weeks time.
As a result, the Treasury said almost 28 million people will keep an extra £330 of their money on average next year.
The Treasury added this will also reduce tax for 920,000 businesses by nearly £10,000 on average next year.
Kwasi Kwarteng has revealed there will be 38 local and combined authorities in England in the running to establish new Investment Zones to get their local economies growing.
The government is in discussion with areas including West Midlands, Tees Valley, Somerset and Hull to set up these Zones in specific sites within their area, which will be “hubs for growth”.
Each Investment Zone will offer targeted and time-limited tax cuts for businesses, backing them to increase productivity and create new jobs.
It is hoped this will encourage investment in new shopping centres, restaurants, apartments and offices and subsequently boosting the economy.
The Energy Price Guarantee (EPG) has already been announced, capping the unit cost of energy.
As a result, the typical household should receive annual bills of £2,500, with the measures in place for two years.
Whilst this is a hike of the current amount, it is much lower than the previous amount announced. It should also be noted that consumers could end up paying more if they use more energy.
Mr Kwarteng said he was unsure of exactly how much the package would cost due to volatile energy prices but said “the total cost of the energy package for the six months from October is expected to be around £60billion.”
The Chancellor pledged to simplify so-called IR35 rules, which are in place to ensure that workers who would have been employees if they were providing their services directly to a client pay broadly the same income tax and National Insurance as employees.
Such workers had often being paying lower rates than those in conventional employment. Rule changes in 2016 meant public authorities became responsible for deciding if the rules applied to their contract workers, while in April 2021, all public authorities and medium- and large-sized firms became responsible for checking a worker’s status.
Mr Kwarteng stated he would repeal these rules, suggesting that oversight of compliance could be more lenient, albeit he stressed compliance by firms and public organisation would be kept under review.
A relaxation of the rules could mean that companies could more readily claim that a larger proportion of their workforce are contractors, and therefore reduce their employment costs.
Major IR35 cases have hit the headlines with celebrities including radio and TV presenter Kaye Adams, BBC football pundit Gary Lineker and tv personality Eamonn Holmes.
Households on benefits have been targeted with a threat by the Chancellor that they could lose a portion of their benefits if their search for work is deemed inadequate.
The Chancellor praised the UK’s lowest unemployment rate for 50 years, but stated that with more vacancies than unemployed people, the Government needed to “encourage people to join the labour market”.
He revealed new measures that would help people on low incomes secure more and better paid work.
Universal Credit claimants who earn less than the equivalent of 15 hours a week at the National Living Wage will be required to meet their Work Coach regularly to take active steps to increase their earnings or face having their benefits reduced.
The Government said it believed the change would bring an additional 120,000 people into the more intensive work search regime.
Furthermore, jobseekers over 50 will be given extra time with jobcentre work coaches to help them return to the jobs market.
Levels of economic inactivity have been rising among the over 50s, a cohort where larger numbers have opted for early retirement after the pandemic.
Mr Kwarteng said this was leading to shortages of workers in the jobs market, driving up inflation and limiting growth. He expected a return of economic activity levels among the over-50s to pre-pandemic levels to potentially boost GDP by 0.5-1 percentage point.
VAT free shopping
The Government is also introducing VAT-free shopping for overseas visitors. It said this will support high streets, shopping centres and airports, creating jobs in the retail and tourism sectors.
Alcohol duty will be frozen from February 2023.
This is a tax cut worth £600million, the Treasury says, and will save the consumer 7p on a pint of beer, 4p on a pint of cider, 38p on a bottle of wine and £1.35 on a bottle of spirits.