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An early read on Kwarteng's 'mini' budget

Pharmacy News

An early read on Kwarteng's 'mini' budget

By Rob Darracott

In what was termed by many a ‘mini-budget’ the tools deployed by chancellor of the exchequer Kwasi Kwarteng in The Growth Plan 2022 were in stark contrast to those used by previous chancellors who latterly wound the tax burden up to its highest level since the 1940s. And the use of those tools has created much disquiet and a U-turn.

Energy

In ‘pre-announcements’ days before the event itself, the chancellor reiterated that energy bills would be capped at £2,500 for an average household. On top of that there would be £400 given in instalments over a six-month period from October. Those off the gas grid – for example, on oil or LPG – would get an extra £100 on top.The government reckons the average householder will be ‘better off’ by £2200, though that’s a relative term, considering the marked increase in the cost of energy this year.

There is assistance for businesses too as many ordinarily viable firms faced going to the wall. The government’s announcement that they will also be able to benefit from the same cap per unit of energy as households was welcomed although, so far, it will only apply for six months, not two years. On current prices that help will take an estimated 45 per cent off bills.

The six-month initial period is a worry for the NPA. It said: “This government relief for businesses facing rising energy prices is very welcome, but it leaves room for doubt as it is only guaranteed for a few months.”

The chancellor noted that “the consensus amongst independent forecasters is that the government’s energy plan will reduce peak inflation by around five percentage points.” If that is the case then individuals, businesses and the government alike will be mightily relieved.

National Insurance and Dividends Tax

The previous government’s increase in National Insurance of 1.25 per cent is to be reversed from November. The move will benefit both employees and employers and should save the former on average £330 a year while businesses could save up to £10,000 a year.

For business owners and shareholders specifically, the chancellor said that the 1.25 per cent increase on income tax on dividends announced at the same time as the rise in NI from April 2022, will be reversed from April 2023. This is expected to save taxpayers an average of £345 a year.

With the reversal of the NI increase originally earmarked for health and social care, the NHS Confederation welcomed the chancellor’s confirmation that the money will be replaced from general taxation, but chief executive Matthew Taylor warned: “In the context of rising inflation levels and the pay award not being fully funded, the NHS simply needs more investment to stay afloat and fully meet the needs of its patients. The real terms cuts facing the NHS are at least £4 billion this year, which represents the first drop in funding in years.”  

“There is a yawning gap which is leaving the NHS in a perilous position as local leaders will either have to cut back patient care or accept that waiting times will continue to lengthen.” 

Corporation and Income Tax

Among the measures actually announced in the ‘mini budget’, and with an eye to encouraging as many firms as possible to base themselves in the UK, the planned rise in Corporation Tax from 19 to 25 per cent in April 2023 has been shelved. The argument is  that while individual firms may pay less tax, that deficit will be made up by more corporate taxpayers liable to pay tax.

Corporates – large and small – seeking to invest in plant and equipment (visitors targeting the tech stands at The Pharmacy Show take note) will be pleased that the Annual Investment Allowance threshold – a 100 per cent capital allowance for qualifying expenditure – has been permanently set at £1 million, rather than reverting to £200,000 from April 2023.

Other business-related changes likely to impact SMEs include an expansion of the Seed Enterprise Investment Scheme (SEIS) to help start-ups raise finance, and an expansion of the Company Share Option Plan (CSOP) scheme which allows companies to tax-efficiently grant shares to full-time directors.

For individuals, the chancellor brought forward from 2024 to 2023 a 1p cut in income tax, down from 20p to 19p in the pound. While the cut applies to those currently earning between £12,571 to £50,270, surprisingly, the chancellor moved to help high-rate taxpayers and abolished the 45 per cent highest tax band for those on more than £150,000. Again, the thinking was that giving the wealthy more to spend should encourage ‘enterprise and growth’, however barely 10 days after the 'mini budget' the chancellor was forced to recant this last particular cut. It caused much outrage and was politically unacceptable 

The scrapping of some of the IR35 rules will be welcomed by pharmacies who will no longer have the burden of checking the employment status of staff. However, that problem will be passed back to locums, who will either ignore the rule or be tied up in knots having to defend their status.

Many have already decried the removal of the cap on banker’s bonuses, but the idea is to have more of those well-paid bankers earning and paying tax in the UK rather than overseas. 

Other changes

Those buying homes will have more left in their pockets through an immediate cut in Stamp Duty for transactions in England and Northern Ireland. In detail, the chancellor raised the threshold before Stamp Duty is paid to £250,000 from £125,000 and gave more assistance to first-time buyers. They formerly paid nothing on purchases below £300,000, but will benefit from an increase in the threshold to £425,000. That help now applies to homes valued up to £625,000 rather than £500,000 previously.

And for those fond of a drink at the end of the working day, there is succour in knowing that the planned increases in the duty rates for beer, for cider, for wine, and for spirits have all been cancelled. Similarly, there’s an 18-month transitional process for wine duty and an extension of draught relief on smaller kegs of 20 litres and above to help smaller brewers.

Summary

The economy is heading for a recession, if it’s not already in one and the government wants to minimise the fallout and instead grow GDP by 2.5 per cent a year; in the words of the chancellor: tax cuts will "turn the vicious cycle of stagnation into a virtuous cycle of growth".

However, others think that interest rates could rise to 5 per cent or more next year as inflation could be exacerbated by the changes. The foreign exchange markets weren’t immediately convinced either – sterling dropped as investors worried about the level of debt the government is about to take on at a time when the Bank of England is set to sell off some of the government debt it holds.

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