October 4, 2022
by  Josh Sab

What you need to know - Government Mini Budget 2022

Today we’ll discuss the announced Mini Budget, breaking it down into sections and considering the logic and intent behind the decisions. This analysis is subject to rapidly changing conditions and so if you have any issues or questions you are encouraged to reach out for more specific information at office@pfconsult.co.uk

Energy

Capping energy prices, by offering subsidies to energy providers the Government has managed to agree on the upper limit of £2,500 annually for consumers, they are calling this the Energy Price Guarantee.

On the other hand, they have also created the Energy Bill Relief scheme, a discount on wholesale gas and electricity prices for businesses, charities, and schools. In real terms, this means that the Government is again giving a cost-saving deal to the energy companies which they are then meant to pass on to businesses. This is very emblematic of the overall theme of this mini-budget, that being a reliance on trickle-down economic principles.

Supply-side stimulus

38 Investment Zones have been chosen across the country where a reduction in red tape and an increase in tax incentives are hoped to spread out the planned economic growth alongside similar locations discerned by the devolved governments. The Treasury has not expanded much on this policy as the implementation process is still being figured out, however, the claimed goal of local authorities in areas such as Coventry and Somerset is to attract investment such as the building of gigafactories (Tesla car and battery production facilities).

In an attempt to ensure reliable transport infrastructure policy is being developed for 'Minimum service levels' supposedly being implemented to prevent strikes from transport services, though how this would be enforced or address larger systemic failings is not yet explained.

Landlords may also be unaware that there is a proposal to increase further the minimum Energy Performance Certificate (EPC) rating required for a house to be rented out privately. Currently to be eligible houses are required to have an EPC of E or better.  Should the Government’s amendments to the current bill be successful this would raise the minimum threshold to C. The intended result is clearly to increase overall efficiency in household energy usage however in this case the cost of this expectation will be on the landlords to bear. The timeline currently proposed is thus, by 2025 EPC C would be the legally required minimum for new tenants in England and Wales. By 2028 this would be extended to all private tenancies.

The removal of the Bankers’ bonus cap has also been announced as an attempt to entice more talent to the country and specifically London to stimulate growth.

 Tax

The chancellor has announced the reduction of the basic income tax rate to 19% from April 2023 increasing the take-home pay of 31 million people. Further, the abolishment of the additional rate income tax removes the 45% rate to bring our highest earners taxation in line with competitor economies like the US and Italy and incentivise high-income migration to the country. Though it could be argued that Germany and France are better comparisons, both of which maintain at least a 45% income tax for high earners.

There has also been a lowering of Stamp Duty by doubling the nil rate band to £250,000 as well as increasing the nil rate for first-time buyers up to £425,000 and increasing that to only 5% for first-time buyers up to £625,000. The Government claims these lift 200,000 people out of obligations of stamp duty.

National Insurance contributions have also taken a cut of 1.25% returning up to £330 yearly to the worker. The Government has assured that funding will be allocated from elsewhere to recoup the loss of income for the NHS and maintain current levels of investment.

Plans have also been scrapped to increase the corporation tax rate from 19% to 25%. This maintains the lowest corporation tax in the developed world. The claim is that by allowing businesses to retain their funds which according to the Govt sums to a total of £70 billion the money will be used to reinvest, create jobs, and increase wages.

Extension of the Annual Investment Allowance at £1 million incentivises business investment. Granting 100% tax relief on plants and machinery up to that amount. Alongside super deductions, this makes industrial and hardware innovation sectors increasingly more appealing to investors.

Seed Enterprise Investment (SEIS) will assist over 2,000 companies in growing due to tax relief from April 2023 and attract innovators and entrepreneurs to establish businesses in the UK.

The Government has also revealed the intention to stop using EU regulations by 2023 and require departments to review, replace or repeal established laws inherited from EU membership.

The repealing of the 2017 and 2021 I35 legislation seems to be an attempt to promote smaller firms and individuals engaging in freelance work. Returning the onus of declaration to the individual signifies a relaxation of HMRC litigations and an overall value increase for people and businesses at the cost of Government income.

Conclusion

In summary, we can see that this mini-budget is focused mainly on unchaining businesses and corporations from tax and legislation. The Prime Minister has established that the overarching goal has been to grow the economy. The paradigm for this shift is measured by a department-wide policy standard of 2.5% economic growth. This means that every policy moving forward succeeds or fails on whether it is seen to benefit this target.

The largely unaddressed price to these business boons is that the Government has not made any attempt to mitigate the costs of these cuts, instead relying on the country's borrowing power to leverage private sector growth. This means infrastructure may suffer as less taxation means either a cut in Government spending or a further compounding of public debt. We can also see that in an attempt to lessen the public burden that landlords have been as of yet left holding the bag regarding the many houses requiring renovations to meet energy efficiency policy.

Following the initial announcement, the Chancellor has walked back the 45p tax rate cut due to widespread backlash from both the country and Conservative Party. It's unclear whether this will be enough to counteract the steep drop in the value of the pound though we can see some confidence has been restored by the decision.

Ultimately this budget can be seen to benefit high-earning business owners disproportionately during a time when many of the middle and working classes are suffering due to the cost of living. We have seen a general distaste for these changes with the rapid drop in the value of the pound this week as well as rumours that Conservative MP's have already begun offering letters of no confidence. It is impossible to predict the final outcomes of these changes however the London School of Economics did a study in 2020 where they found trickle-down economics had no "significant effect on employment or economic growth." As well as "major tax cuts for the rich increase the top 1% share of pre-tax national income in the years following the reform. The magnitude of the effect is sizeable; on average, each major reform leads to a rise in the top 1% share of pre-tax national income of 0.8 percentage points." So the consensus seems to be regardless of where you sit on the economic totem pole tightening the belt and perhaps diversifying your assets across markets or industries would serve you well.

Thank you for taking the time to read this week's blog and once again feel free to contact us with queries at office@pfconsult.co.uk or any of our socials.

Top
cogenvelopephonescreensmartphonelink linkedin facebook pinterest youtube rss twitter instagram facebook-blank rss-blank linkedin-blank pinterest youtube twitter instagram