UK government U-turns on package of tax cutting measures
Published on 17th Oct 2022
The new chancellor has announced the dismantling of Kwasi Kwarteng's emergency fiscal event of the previous month
The new chancellor, Jeremy Hunt, made a statement on 17 October 2022 to reverse the majority of the tax cuts that were announced by the previous chancellor, Kwasi Kwarteng, at his emergency fiscal event on 23 September 2022 (for detail of those measures see our previous Insight).
It had been expected that the reversals would be announced at the medium term fiscal plan event to be held on 31 October 2022, but the chancellor brought this forward by two weeks to calm the markets and to encourage confidence and stability following the economic turbulence that has arisen since the September fiscal event.
Measures not being taken forward
Alongside the previously announced decisions to retain the additional rate (45p) of income tax and to reverse the corporation tax cut, the new chancellor announced that the following tax policies will no longer be taken forward:
- Cutting the basic rate of income tax to 19% from April 2023. The basic rate of income tax will therefore remain at 20% indefinitely.
- Cutting dividends tax by 1.25 percentage points from April 2023. The 1.25 percentage points increase, which took effect in April 2022, will now remain in place.
- Repealing the 2017 and 2021 reforms to the off-payroll working rules (also known as IR35) from April 2023. The reforms will now remain in place.
- Introducing a new VAT-free shopping scheme for non-UK visitors to Great Britain. The government is not proceeding with this scheme.
- Freezing alcohol duty rates from 1 February 2023 for a year. The next steps of the Alcohol Duty Review announced in the "Growth Plan 2022" will continue as planned.
As these reversals result in the current legislation being preserved, no further legislation is required to make these changes ─ although the next Finance Bill will, of course, include provisions to levy income and corporation tax (at the rates of 20% for income tax and 25% for corporation tax) for the forthcoming financial year (from 6 April 2023) as they are annual taxes and so the authority to levy them expires at the end of each tax year.
Measures being taken forward
Not every measure in the emergency fiscal statement was reversed, however, and the statement confirmed that the following tax policies will continue as set out in the Growth Plan:
- The government’s reversal of the National Insurance increase and the Health and Social Care Levy (the Health and Social Care Levy (Repeal Bill) bill is currently making its way through Parliament);
- The cuts to Stamp Duty Land Tax (which have been in effect since 23 September 2022 by way of a provisional collection of taxes measure and will be finalised via the Stamp Duty Land Tax (Reduction) Bill).
- The £1 million Annual Investment Allowance, the Seed Enterprise Investment Scheme, and the Company Share Option Plan (CSOP) reforms will also continue. The expansion of the CSOP regime and doubling of the limit to £60,000 from 6 April 2023 is explained in our recent Insight.
To read further details of what was announced in relation to those measures in the emergency fiscal statement on 23 September, see our previous Insight.
The statement also confirmed that the Energy Price Guarantee and the Energy Bill Relief Scheme which are supporting households and businesses with rising energy costs will not continue past April 2023 and a Treasury-led review will be launched to consider how to support households and businesses with energy bills after April 2023.
Nothing was mentioned in relation to investment zones but it is possible that further detail will come out over the next few weeks.
Osborne Clarke comment
The statement almost completely reversed Kwasi Kwarteng's policy of tax cuts over tax rises to boost growth. Indeed the chancellor stated in his speech that there will be more difficult decisions to take on both tax and spending. We can therefore expect more measures to be announced in the medium term fiscal plan, which it is expected will still be announced by the chancellor on 31 October 2022, alongside the Office for Budget Responsibility report.
It is hoped that the measures will stabilise the markets after the turmoil of the last few weeks. If so, businesses will also welcome the confirmation that the £1 million Annual Investment Allowance, the Seed Enterprise Investment Scheme and the CSOP reforms will continue to further support business investment. CSOPs are likely to become much more attractive to a wider range of growth companies.
With further tax rises and spending cuts expected and ongoing uncertainty as to the UK's economic outlook, businesses will no doubt be nervous as to what might be in store in the medium term fiscal plan in a few weeks' time.