This Friday, Chancellor Kwasi Kwarteng will deliver a mini-Budget to outline the new government’s spending plans. All eyes will be on promises of financial help, as the UK continues to struggle with a cost of living crisis and concerns over a looming recession.
The Chancellor is expected to reverse a 1.25% rise in National Insurance contributions and scrap the 6% increase in corporation tax proposed in the Spring statement. The mini-Budget could also bring forward the 1p income tax cut from 2024, and raise the income tax threshold for the highest earners.
As Prime Minister Liz Truss told reporters this week, she believes lower taxes will lead to economic growth and allow Britain to attract investment on a global scale.
“We do have to take difficult decisions to get our economy right. We have to look at our tax rates. So corporation tax needs to be competitive with other countries so that we can attract that investment,” she said.
It comes as no surprise that these tax cuts will benefit high earners the most.
The reversal of the National Insurance rise would lead to a gain of more than £1,800 for top earners; those on the lowest incomes would gain £7.66. Additionally, raising the income tax threshold from £50,270 to £80,000 could result in a tax saving of nearly £6,000 for those earning more than £80,000.
Discounts will apply to fixed contracts agreed on or after 1st April 2022, as well as to deemed, variable and flexible tariffs and contracts. It will run from 1st October 2022 to 31st March 2023, with savings first seen in October bills (typically received in November).
The scheme will work by providing a discount on gas and electricity unit prices. To calculate your discount, the estimated wholesale portion of the unit price will be compared to a baseline “government supported price”. This price is lower than expected wholesale prices this winter.
For all non-domestic energy users in the UK, the government supported price has been set at:
If you’re new to the term, the theory is that tax cuts and benefits for high earners and corporations will trickle down to everyone else. Without a significant tax burden, there’s more cash to start new enterprises, invest in business growth and create more jobs.
So while these cuts initially reward the wealthiest in society, they should lead to economic growth which eventually benefits everyone.
However, critics of trickle-down economics argue that cutting tax for the wealthy only adds to growing income inequality. Research from the International Monetary Fund stated that the reverse actually leads to higher economic growth:
“Our analysis suggests that the income distribution itself matters for growth. Specifically, if the income share of the top 20% (the rich) increases, then GDP growth actually declines over the medium term, suggesting that the benefits do not trickle down. In contrast, an increase in the income share of the bottom 20% (the poor) is associated with higher GDP growth.”
The Chancellor is expected to reverse a 1.25% rise in National Insurance contributions and scrap the 6% increase in corporation tax proposed in the Spring statement. The mini-Budget could also bring forward the 1p income tax cut from 2024, and raise the income tax threshold for the highest earners.
As Prime Minister Liz Truss told reporters this week, she believes lower taxes will lead to economic growth and allow Britain to attract investment on a global scale.
“We do have to take difficult decisions to get our economy right. We have to look at our tax rates. So corporation tax needs to be competitive with other countries so that we can attract that investment,” she said.
It comes as no surprise that these tax cuts will benefit high earners the most.
The reversal of the National Insurance rise would lead to a gain of more than £1,800 for top earners; those on the lowest incomes would gain £7.66. Additionally, raising the income tax threshold from £50,270 to £80,000 could result in a tax saving of nearly £6,000 for those earning more than £80,000.
Introducing the Energy Bill Relief Scheme
In good news, the government announced a long-awaited Energy Bill Relief Scheme today. The scheme will provide energy bill relief to non-domestic customers, including all UK businesses, charities and the public sector such as schools and hospitals.Discounts will apply to fixed contracts agreed on or after 1st April 2022, as well as to deemed, variable and flexible tariffs and contracts. It will run from 1st October 2022 to 31st March 2023, with savings first seen in October bills (typically received in November).
The scheme will work by providing a discount on gas and electricity unit prices. To calculate your discount, the estimated wholesale portion of the unit price will be compared to a baseline “government supported price”. This price is lower than expected wholesale prices this winter.
For all non-domestic energy users in the UK, the government supported price has been set at:
- £211 per megawatt hour (MWh) for electricity
- £75 per MWh for gas
- £600 per MWh for electricity
- £180 per MWh for gas
Truss’s trickle-down economics
The proposed tax cuts have faced a backlash this week, with many criticising Truss’s belief in “trickle-down economics”.If you’re new to the term, the theory is that tax cuts and benefits for high earners and corporations will trickle down to everyone else. Without a significant tax burden, there’s more cash to start new enterprises, invest in business growth and create more jobs.
So while these cuts initially reward the wealthiest in society, they should lead to economic growth which eventually benefits everyone.
However, critics of trickle-down economics argue that cutting tax for the wealthy only adds to growing income inequality. Research from the International Monetary Fund stated that the reverse actually leads to higher economic growth:
“Our analysis suggests that the income distribution itself matters for growth. Specifically, if the income share of the top 20% (the rich) increases, then GDP growth actually declines over the medium term, suggesting that the benefits do not trickle down. In contrast, an increase in the income share of the bottom 20% (the poor) is associated with higher GDP growth.”
