The new UK government has unveiled its economic plans to help the country recover financially. The so-called mini budget revealed a raft of measures that will impact most of us. But, what does the mini budget mean for your personal finances?
Read on to find out…
Disclaimer: This is not meant to be a comprehensive guide of everything covered. Instead, it is designed to give you an overview of the key information and how it will impact your budget.
- Income Tax changes
- Stamp Duty cut
- National Insurance Contributions
- Bankers’ bonuses
Income Tax changes
For all taxpayers there is some good news in the form of Income Tax. From April 2023, the basic rate of tax will drop from 20% to 19%.
This means you will pay 1% less tax on anything you earn between £12,751 and £50,000. It will not have a huge impact on your budget – particularly as prices are increasing so rapidly.
According to EY analysts, a person earning £20,000 a year will save £167.
Meanwhile, someone earning £40,000 will save £617 and person with earnings of £60,000 will save £969.
However, those earning at a much higher level stand to benefit further.
Chancellor Kwasi Kwarteng is scrapping the highest 45% tax rate, meaning the highest level of income tax anyone will pay is 40%.
The Chancellor says this move will “reward enterprise and growth”. It benefits those who earn more than £150,000 a year.
Calculations suggest someone earning £200,000 in a year will save £2,877 in tax.
It’s important to note these changes do not apply to Scotland.
This feeds into the main criticism of the mini budget – that it disproportionately benefits high earners.
The government claims this will boost economic growth which in turn will benefit those at the lower end of the wealth scale. However, many disagree with the ‘trickle down economics’ theory.
Stamp Duty cut
Additionally, the government announced a cut in Stamp Duty – the tax you pay when buying properties.
The threshold at which buyers have to pay the duty will rise from £125,000 to £250,000.
Previously, the first £125,000 of a property’s value was tax free. Buyers were then charged 2% of the value of the property above that threshold up to £250,000, and 5% on the portion between £250,001 and £925,000.
For first time buyers, the threshold has risen even further.
The level at which first-time buyers have to pay stamp duty will rise from £300,000 to £425,000 in a move to increase home ownership. Under the plans, the first-time buyer relief will be applicable to properties worth up to £625,000, compared with the current £500,000.
This could save the average first time buyer in London over £11,000, according to data from HM Treasury and The Guardian.
At a first glance, this seems like good news. You will save money on home purchases.
However, sadly it is not quite as simple. During the last Stamp Duty holiday, the property market was boosted so much that it actually increased house prices.
This is great news for those wanting to sell their homes or for those that already own them. But for those who don’t, it risks making getting on the property ladder even more unattainable.
National Insurance Contributions
Mr Kwarteng fulfilled promises to reverse the rise in National Insurance payments introduced by Boris Johnson’s government to pay for social care and tackle the NHS backlog.
Again, those who earn more stand to save more from this. Someone earning £20,000 will pay £93 less and someone on £30,000 will save £218.
However, someone on £50,000 stands to save £468 and a £100,000 earner will pay £1,093 less tax.
While many were hoping for some additional support for society’s most vulnerable, the Chancellor took a different direction.
He decided to remove the EU’s cap on bankers’ bonuses, meaning there is no limit to the amount of additional renumeration they can receive.
Again, this is designed to make the UK more competitive economically and attract money to the country. Critics suggest this will not help those that are most in need of extra support.
So, how can you benefit from this change? I suppose, get yourself a job at a bank and earn yourself a large bonus…
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