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A MARVELLOUS MINI BUDGET OR A MAD MISTAKE?
It was just 72 hours ago that our new Chancellor Kwasi Kwarteng announced a mini Budget to deal with the various economic challenges we face both as consumers and business owners.
Today the pound is at an all-time low as international markets respond to that Budget with some commentators believing that the Bank of England may introduce an emergency interest rate rise to shore up the currency – only days after the interest rate went up by 0.5 per cent. Bloomberg now predicts that the interest rate will rise to around 5.2 per cent by August next year.
The Government has argued that its raft of measures are designed to make the UK an attractive place to invest and that support at the top will create a ‘trickle down’ effect to those at the ‘bottom’. However international markets have not reacted well to the announcements to date.
Among the Chancellor’s announcements were:
- A cut to the basic rate of income tax down to 19 per cent – from April 2023.
- Scrapping the planned rise to National Insurance contributions due to come in shortly (1.25 per cent).
- Announcing that Stamp Duty on house purchases will not have to be paid on the first £250,000 of any purchase and for first time buyers that cap is lifted to £425,000.
- Scrapping a plan to lift corporation tax for medium sized and bigger businesses from 19 per cent to 25 per cent.
- Abolishing the 45 per cent tax band for those earning more than £150,000 a year, so the highest rate of income tax will now stand at 40 per cent for anyone earning over £50,270.
- Scrapping bankers’ bonuses as banking is a substantial driver of the UK economy.
These last two announcements are the ones which have attracted the most criticism as, for some, it seems that it’s giving more to the rich, while those on lower income will benefit far less in terms of money in their pockets.
What do business commentators think?:
Michael Blaken, Accounts Director at accountancy and law firm Optimum Professional Services, said:
“The devil is in the detail, but some of the announcements look like good news for businesses. Cancelling the planned increase in Corporation Tax, reversing the increase in National Insurance and keeping the Annual Investment Allowance at £1m are welcome. Whether they are enough to get the economy growing again remains to be seen.
“There was some information given about the reversal of off-payroll working rules, known as IR35. We have many contractors among our clients, and it will be interesting to see if this opens the market for contractors to move away umbrella companies.
“As conveyancing lawyers, we welcome the cut to Stamp Duty Land Tax for house buyers, in particular first-time buyers. Of course, this has to be balanced by the fact that interest rates are rising, making mortgage borrowing more expensive.
“One definite positive: no increase in duties in beer, cider, wine and spirits!”
Peter Jones, Managing Director of HR Dept Swindon, North Wiltshire and East Cotswolds, also welcomed news that the Chancellor is scrapping off-payroll working rules, known as IR35. This will come into effect from April 2023.
“This is good news both for companies and contractors, stripping a level of bureaucracy from engaging self-employed staff.”
Mike Lloyd, managing partner of Haines Watts Swindon, based in Old Town said:
“Following on from the energy caps and discounts announced earlier in the week, the Chancellor has offered up a huge swathe of tax cuts the like of which has not been seen for a long, long time which must bring some desperately needed relief to embattled families and individuals. Some will be more popular than others with various sections of the populace.
“The scrapping of bankers’ bonuses and the removal of the 45% tax band will certainly have eyebrows raised despite the former being leaked beforehand.
“He is clearly banking on the ‘trickle down’ effect to kick-start the economy. We shall now have to wait and see if that will be successful. With Sterling in freefall and the FTSE following suit it would seem the markets have their doubts!”
Sanjay Badhan from Future Planning, also in Old Town, Swindon said:
“Much-needed tax cuts could stimulate the economy but it’s a risky strategy that we will need to wait and see if it works. Capping energy costs for a few months is a temporary respite rather than a permanent relief, so unsure whether we will see people spending lots more just yet. They clearly are hoping people spend more, generating VAT to cover the cost of increased debts”.
Stefan Thomas, business networking expert and author of Business Networking for Dummies. Based in Oxfordshire, he said:
"I speak to a lot of small business owners every week and the effects of the mini budget, and particularly the effect it has had on the value of the £, have much more of an impact than people imagine.
Many small business owners use US suppliers - particularly for software. Up until now people have rarely thought about it, but coupled with the cost of living increasing, the cost of email marketing software, social media scheduling software, CRMs and the like will make a noticeable difference to the monthly outgoings of many businesses. The option to switch to UK based suppliers now feels very attractive, and those suppliers have an opportunity to make it easy for people to switch.
For businesses which organise international travel, either as an integral part of their business or as a side effect of their business, their costs have just increased too. For those businesses who supply to the US or markets where the price is quoted in USD$ they need to make decisions about how they alter their prices, or accept that their invoices are now worth less than they were once converted. Interesting, and frankly worrying, times for lots of businesses."
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