Kwasi Kwarteng, Chancellor of the UK, is betting on tax cuts as well as energy bill support to increase the UK’s economy to 2.5% growth.
Kwasi Kwarteng, the new Chancellor of Exchequer, has unveiled today the largest package of tax cuts in the UK’s history. It includes major reforms and tax reliefs that are important for businesses.
Kwarteng addressed Parliament today (23 September) and stated that growth is not as high as it should currently be. He also claimed there are too many obstacles for business. Kwarteng, who addressed Parliament this morning (23 September), stated that the government had set a 2.5% growth rate target for the medium-term. This will ensure sustainable funding of public services and better living standards.
Kwarteng stated that the plan was to increase the supply side of an economy through tax reform and incentives.
“This is how we will provide higher wages, more opportunities, and fund public services now and in the future. This is how we can compete with dynamic economies all over the globe.
He said that the government would focus on growth, even if it means making difficult decisions.
As the UK faces staggering inflation, the mini-budget was revealed. According to the Office for National Statistics (ONS), inflation fell fractionally in August from 10.1% in July to 9.9% in August. It is still close to the 40-year high.
So what does Kwarteng’s growth plan mean for brands? These are the main takeaways
1. Annullation of corporation tax increase
The planned increase in corporation tax for next year has been cancelled. It will now be 19% for all businesses regardless of how much profit they make.
The previous government had planned for 25% corporation tax to be added to profit exceeding PS250,000, roughly 10% of active trading companies. Companies earning between PS50,000-PS250,000 profit would have been paid between 19% to 25%, depending on the amount of profit earned. The remaining 70% of active trading companies that make profits between PS50,000 and PS250,000 would continue to pay 19%.
The UK’s corporate tax rate, after cancelling the tax increase, remains the lowest among the G7 (which includes the US, France and Germany as well as Canada, Japan and Italy) and the lowest among the G20.
The government claims that business taxes competitive with other businesses will encourage investment and increase enterprise.
2. PS60bn will be invested in energy bill relief
Kwarteng created an energy package that will cost PS60bn in the next six months, as energy bills for households and businesses rose due to the invasion of Ukraine.
To protect businesses from rising costs, the energy bill relief program aims to reduce business energy bills by offering a discount on wholesale gasoline and electricity prices.
To assist households, an energy price guarantee is being introduced. Kwarteng claims that the price guarantee will reduce household energy bills to PS2,500. This will, he says, save households PS1,000 per year over the next five-years. Additional payments will be made to vulnerable households.
A scheme to finance energy markets is being introduced by the government. It aims at supporting energy traders and providing emergency liquidity.
Kwarteng stated that this energy plan would reduce peak inflation by approximately five percentage points.
3. Additional significant tax reforms
Today’s announcements include the reverse of the 1.25 percentage points increase in National Insurance Contributions. This will, according to the government, save 920,000 businesses nearly PS10,000 per year.
Instead of returning to PS200,000 in March 2023 (which was the previous annual investment allowance), it will be permanently changed to PS1m. Businesses get 100% tax relief on plant and machine investments up to this new limit.
Sector-specific support was announced for pubs, hotels and other hospitality businesses. Alcohol duty has been frozen for another year. Plans to modernise alcohol duties will be made.
Kwarteng also eliminated the additional tax rate in favor of a single, higher rate income tax of 40%. This change will take effect starting April 2023. According to the Chancellor, the policy eliminates the UK’s top-rate tax and is intended to help companies innovate and grow.
4. ‘Investment Zones’
The government is currently in discussions with 38 mayoral combined authority areas in England regarding the establishment of ‘Investment Zones’. These include Tees Valley and South Yorkshire, as well as West of England.
These zones will provide “generous and targeted tax cuts for businesses” and will be “hubs of growth” with the goal to encourage investment in new shops, restaurants, apartments, and offices.
5. Private investment: unlocking the potential
Kwarteng also announced measures to unlock private capital, including plans to increase the investment of pension funds in UK assets. He claimed that this will be a benefit to savers, boost economic growth, incentivize investment into the nation’s science and tech companies, as well as a way to encourage them.
According to the Chancellor, the government will provide further details about its plans over the next few weeks. These include a ramping up of digital infrastructure, reforming the regulation of business, making childcare more affordable, and supporting financial service.
6. There is no mention of business rates
The Chancellor’s Growth Plan Statement did not mention any changes to the 10% increase in business rates that will be occurring next April.
Helen Dickinson (BRC chief executive) says that this increase will result in an additional PS800m of “unaffordable” tax increases on retailers already squeezed.
She argues that “it is unavoidable that such additional taxes in the form higher prices will eventually be passed on to families.”
“The government still has time to act. The government should freeze the business rate multiplier to stimulate investment. This will allow retailers and other businesses to concentrate on what is important, which is keeping household prices down.
The mini-budget was revealed following another drop in UK consumer confidence . The latest GfK Consumer Confidence Index has shown that confidence has fallen to a new low, for the fourth consecutive month.
The pessimism of consumers towards their personal and general finances over the next year is especially stark. There has been a nine-point drop in personal finance scores since August to -40 and an eight-point drop in general economic conditions to -68.