Mini-Budget: Kwasi Kwarteng says UK at ‘beginning of new era’
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In his first policy speech as Chancellor, Kwasi Kwarteng announced a major rehaul of the tax code. The basic rate of income tax will be slashed for the first time in 15 years down to its lowest ever level, and the additional rate imposed on the highest earners is to be scrapped entirely. Alongside a range of other measures, the Government made it clear it viewed economic growth as the path out of the current crisis.
In March, then-Chancellor Rishi Sunak announced his intention to reduce the basic rate of income tax by one percent down to 19 percent before the end of Parliament in 2024.
Under the plans announced by Mr Kwarteng on Friday, this cut will now be brought forward by a year – taking effect from the start of the next fiscal year in April 2023.
The Chancellor claimed 31 million people will benefit from the policy, allowing them to keep an additional £170 on average.
Mr Kwarteng said: “This means we will have one of the most competitive and pro-growth income tax systems in the world.”
The total value of the tax cut to workers, savers and pensioners is over £5billion according to the Government.
The current income tax system is split into four bands: personal allowance, basic rate, higher rate and additional rate.
All income up to £12,570 is tax-free – this is the personal allowance. The basic rate of 20 percent applies to annual earnings between £12,571 and £50,270.
Yearly income between £50,271 and £150,000 is taxed at the 40 percent higher rate.
Every pound earned beyond £150,000 is currently taxed at the additional rate of 45 percent.
In Friday’s mini-budget, Mr Kwarteng announced that this additional rate of income tax will be abolished entirely.
From April 6, 2023, the higher rate of 40 percent will become the top rate at which all income above £50,271 is taxed.
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The Treasury claims this will cut taxes for approximately 660,000 individuals from April next year.
Scrapping the additional rate was also hailed as a tax system simplification measure that would improve the UK’s competitiveness. According to the Government, 25 of the 38 OECD countries had four or more personal tax rates in 2021.
The provision which sees the tax-free personal allowance of £12,570 reduce at a rate of £1 per £2 earned over the £100,000 threshold – thus disappearing entirely after £125,140 – remains unchanged.
So how much income tax will you save next year under the new rate? Enter your income into the search box below to find out…
Both of these changes to the tax code apply to non-savings and non-dividend income for people in England, Wales and Northern Ireland – income tax rates differ in Scotland.
Mr Kwarteng also confirmed that the Government would reverse the latest 1.25 percent National Insurance hike on November 6, as well as cancel next year’s planned corporation tax increase.
The cap on bankers’ bonuses will also be removed, and the threshold below which no stamp duty is owed on the purchase of a home will be doubled to £250,000.
This all comes as part of The Growth Plan 2022, prioritising an expansion of the UK economy above all else with a target rate of 2.5 percent per year.
The Chancellor said: “For too long in this country, we have indulged in a fight over redistribution. Now, we need to focus on growth, not just how we tax and spend.”
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