Harold Wilson was famously attributed with saying a week in politics is a long time. Whilst the phrase has become somewhat of a cliché, the Liz Truss tenure as Prime Minister perhaps suggests that in the modern “always on” technological world in which society now operates, a week is indeed a very very long time.
On 23 September the then new Chancellor Kwasi Kwarteng, who had been in his job for just over two weeks, launched the Growth Plan which he had developed alongside the Prime Minister, Liz Truss.
The Growth Plan included unexpected tax cuts with no explanation as to how these would be funded. There was also no one checking the Chancellors calculations as the Office for Budget Responsibility were not permitted by the Chancellor to undertake their normal independent review.
Roll forward to 17 October and Mr Kwarteng has been replaced by the “new new” Chancellor Jeremy Hunt, who has taken a shredding machine to most elements of the Growth Plan. The main elements to survive unscathed are the abolition of the Health & Social Care Levy and the Stamp Duty Land Tax reductions.
The main pillar of the Prime Ministers strategy since she came to office was the Energy Price Guarantee, which remains in name but has been significantly scaled back from two years to six months up to April 2023. Support from April 2023 is expected to be available, but the scope and quantum is unknown however the Chancellor indicated it will be targeted to those who most need it.
Prior to the mini budget, which launched the growth Plan, we were already preparing clients for the scheduled increase in Corporation Tax from 19% to 25% from April 2023. The Growth Plan was due to abolish the increase but now it won’t.
Businesses will need to factor these changes into their cash-flow modelling, and there may be some limited tax optimisation opportunities to accelerate profits ahead of the change next April.
The Corporation Tax rate increase does make the UK far less competitive compared to other jurisdictions, although it is possible the recent uncertainty around Government policy will be more damaging to UK Plc’s global reputation than the CT rises.
One decision of Jeremy Hunt which was to keep the Income Tax basic rate at 20% indefinitely, rather than reduce to 19% actually goes further than simply unwinding the Growth Plan as the rate had been due to reduce to 19% in April 2024 under proposals by Rishi Sunak when he was Chancellor.
Firstly, if you downloaded our summary of Growth Plan, please do delete it this document as it’s no longer accurate. If you operate via a limited company then you need to be aware of the CT rises from next year and the impact this has on effective tax rates for profits.
We will be talking to our clients on how these changes impact them individually. However, if you would like to discuss the latest proposals please do get in touch before the rules change again.