Tax Rate U-turn by Chancellor

Budget, News, Personal Tax,

As part of the mini-Budget announced on the 23rd September, new Chancellor Kwasi Kwarteng announced the abolition of the 45p rate of tax. Following the intensely negative response from the markets, his Conservative colleagues and the International Monetary Fund (IMF), that particular tax cut was reversed on Monday 3rd October.

You can see all of the content of the Mini-Budget in our summary below, which as been updated to reflect this latest change.

The Chancellor retracted the change on Twitter, saying ‘We are not proceeding with the abolition of the 45p tax rate. We get it, and we have listened. It is clear that the abolition of the 45p tax rate has become a distraction from our overriding mission to tackle the challenges facing our country.’

‘This will allow us to focus on delivering the major parts of our growth package’, including the Energy Price Guarantee, ‘to support households and businesses with their energy bills’. 

Other reactions

The IMF had warned the tax cuts included in the original announcements would ‘stoke inequality’ and would be likely to cause increased interest rates, whilst only benefitting higher earners.

The Bank of England intervened after the announcements with a £65billion in gilt purchases to ‘restore orderly market conditions’ and prevent a ‘material risk’ to UK financial stability.

Almost 300 mortgage products have been removed from the market in the last week, while lenders review their offers amidst doubt about the future of interest rates.

A drastic contraction of the housing market has been forecast, as homeowners fear substantial increases in the costs of borrowing. The 100,000 mortgage owners who exit their fixed term every month are likely to face a painful search for a replacement product, or an urgent need to find significant extra income every month.

What’s next?

Following the abrupt U-turn, it’s now planned that the Chancellor’s next ‘medium term Fiscal Plan’ will be presented on the 23rd November 2022, which will include a full forecast from the Office of Budget Responsibility (OBR). This was not deemed necessary for the announcements made on the 23rd September.

The next full Budget is currently scheduled for Spring 2023.

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