Financial Indicators: Data from FTSE100, as well as oil prices and gold prices.
On 23 September 2022, the Chancellor, Kwasi Kwarteng, gave a fiscal statement to Parliament. The Chancellor announced significant tax cuts and other policies. The Treasury published The Growth Plan 2022, following the statement.
The economic outlook
The statement – described by some in the run up as a mini-budget – was delivered in the context of high inflation and weak economic growth. The pace of consumer price rises – the inflation rate – has been relentlessly moving upward over the past 18 months. A combination of strong global demand for consumer goods, rising energy and petrol prices, and Russia’s invasion of Ukraine have led to the inflation rate hitting a 40-year high of 10.1% in July, before easing slightly to 9.9% in August.
The day before the Chancellor’s statement, the Bank of England raised interest rates by 0.5 percentage points to 2.25%. The Bank has raised rates at each of its last seven meetings since December 2021, as it tries to lower inflation back to the 2% target.
The Library briefing Background to the September 2022 fiscal statement has further information on the outlook for the economy and public finances, ahead of the statement.
In his statement, the Chancellor said that the Government’s aim is to have the economy growing at 2.5% in the medium term. He said that the Treasury’s growth plan is “built around three central priorities: reforming the supply-side of the economy; maintaining responsible approach to public finance; and cutting taxes to boost growth.”
The Chancellor said that “we have to unleash the power of the private sector” and that “[f]or 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.”
The Institute for Fiscal Studies (IFS) report that the tax announcements in the Chancellor’s statement represent “the biggest tax cut of any budget since 1972.” Policies announced by the Chancellor include:
- National Insurance contributions: the day before the statement, the Treasury confirmed that it will reverse the temporary 1.25%-point increase in National Insurance rates from 6 November. It will also cancel the Health and Social Care Levy, which was due to replace the temporary increase in NICs rates in April 2023. The Health and Social Care Levy (Repeal) Bill has been introduced to Parliament and all stages of the Bill will be taken on 11 October.
- Dividends tax: as part of the cancellation of the NICs increase in 2022/23 and the Health and Social Care Levy thereafter, a 1.25%-points increase to dividend tax rates will be reversed from April 2023. The rates charged on dividends income were increased in April 2022.
- Corporation tax: the main rate of corporation tax will remain at 19%. It was due to increase to 25% in April 2023.
- Bank surcharge: the bank surcharge will no longer be lowered in April 2023. The surcharge is levied on top of corporation tax. It was set to fall from 8% to 3% from April 2023, so that the combined rate paid on profits by banks and building societies would be 27%. With the corporation tax rate no longer increasing, the bank surcharge will not change.
- Income tax basic rate: a decrease in the basic rate of income tax from 20% to 19% has been brought forward to April 2023. The basic rate of income tax was due to fall to 19% in April 2024. Income tax thresholds continue to be frozen until April 2026.
- Stamp duty land tax: the threshold to which stamp duty isn’t paid (the nil-rate threshold) will increase to £250,000, from £125,000. The threshold at which first-time buyers begin to pay stamp duty will increase from £300,000 to £425,000 and the maximum value of a property on which first-time buyers’ relief can be claimed will increase from £500,000 to £625,000. Stamp duty land tax only applies in England and Northern Ireland.
- Capital tax allowance: the Annual Investment Allowance (AIA) will be permanently set at £1 million from April 2023. The AIA is a capital tax allowance for certain investments in plant and machinery. In April 2023, the AIA was set to return to £250,000, having been temporarily increased to £1 million.
- Tax free shopping: a VAT-free shopping scheme will be introduced for non-UK visitors to Great Britain. It will enable them to obtain a VAT refund on goods bought in the high street, airports and other departure points and exported from the UK.
- IR35: reforms made to the off-payroll working rules (known as IR35) will be repealed from April 2023. The Library briefing Personal service companies & IR35 discusses the reforms made in 2017 and 2020.
- Alcohol duties: all alcohol duty rates will be frozen from February 2023
The Chancellor also said that that the additional rate of income tax would be abolished from April 2023. Currently the additional rate of 45% is charged on taxable income over £150,000. On 3 October 2022, the Government said that it will not be going ahead with this measure. The additional rate will remain at 45% in April 2023. Announcing the decision not to go ahead with the tax cut, the Chancellor said that “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 economy.”
- Energy support package: the Treasury provided its first cost estimate of the recently announced support for households and businesses with rising energy bills. The Treasury estimates that the Energy Price Guarantee will cost round £31 billion during 2022/23, while the Energy Bill Relief Scheme will cost around £29 billion. Announced earlier in September, the Energy Price Guarantee caps the unit cost of energy for households, while the Energy Bill Relief Scheme does similar for businesses and other non-domestic energy users.
- Investment zones: investment zones will be established in England. Investment Zones will benefit from tax incentives, planning liberalisation, and wider support for the local economy.
- Office of Tax Simplification (OFT): the OFT will be abolished and the Treasury and HMRC will focus on simplifying the tax code. The OFT was set up in July 2010 to advise government on simplifying the UK tax system.
- Government borrowing: the government’s cash management agency (the Debt Management Office) has been asked to borrow £72 billion more from markets in 2022/23 than was requested in March 2022.
- Cap on bankers’ bonuses: the cap on bankers’ bonuses will be removed. The cap currently limits bonuses to twice a banker’s basic salary, with shareholder approval.
- Infrastructure and planning: new legislation (the Planning and Infrastructure Bill) will be brought forward to speed up the delivery of major infrastructure projects across England. Onshore wind planning policy will also be brought in line with other infrastructure, so it can be deployed more easily in England.
- Industrial action: new legislation will be brought in to ensure minimum service levels can be put in place for transport services. This will aim to limit the impact that industrial action has on journeys. The Chancellor also said that the Government would “legislate to require unions to put pay offers to a member vote.”
- Regulatory reforms: the Chancellor said “to reaffirm the UK’s status as the world’s financial services centre, I will set out an ambitious package of regulatory reforms later in the Autumn”
- Universal credit: there will be an expansion of the number of Universal Credit claimants who must submit to more intensive work coaching to increase their earnings or face having their benefits reduced.
Forecasts and fiscal rules
The Office for Budget Responsibility (OBR) were not asked to produce forecasts for the fiscal statement. The Chancellor has commissioned the OBR to produce a forecast before the end of 2022.
Both the Opposition and Chair of the Treasury Committee, Conservative MP Mel Stride, said that forecasts should have accompanied the statement.
The government has targets for how it manages the public finances – often described as fiscal rules. The OBR normally judges whether the government is meeting its fiscal rules when it publishes its forecasts. As no forecasts have been produced for the Chancellor’s statement, the OBR hasn’t said whether the Chancellor is on course to meet the existing fiscal rules. Paul Johnson, director of the IFS, says that the fiscal rules would have been broken if the OBR had produced a forecast.
The Chancellor will provide a medium-term fiscal plan in “due course”, setting out plans for the public finances more fully, including how the Government will reduce debt as a percentage of GDP over the medium term – one of its stated goals.
Think-tanks have produced their own forecasts for the public finances and economy.
- Institute for Government. Kwasi Kwarteng’s new era of economic policy is a major gamble. 23 September 2022
- IFS. Mini-Budget response, 23 September 2022 (includes forecasts)
- NIESR. An Independent Assessment of the Mini-Budget, 23 September 2022 (includes forecasts)
- Resolution Foundation. Blowing the Budget, 24 September 2022 (includes forecasts)
- Tony Blair Institute for Global Change. All Pain, Little Gain: An Economic and Fiscal Forecast of the Growth Plan, 29 September 2022 (includes forecasts)
GDP International Comparisons: data and forecasts for the UK and the world's largest economies.
Manufacturing: Data on manufacturing output, jobs and producer confidence.