The 'mini-budget' - what we think it means for you

If this was a ‘mini-budget’ it begs the question what is the Chancellor saving for the full budget?

Find out what our experts made of today's mini-budget

Personal Tax

In response to the personal tax announcements made today in the Chancellor’s ‘mini-budget’, Alison Hill , tax partner at PwC, said that the abolition of the top rate of income tax was one of the biggest shocks in recent memory.

"The abolition of the 45% rate is by no means the most costly of the Chancellor’s announcements - at a still significant?roughly ￡2bn a year - but it’s a key component in his aspiration to make the UK a ‘nation of entrepreneurs’. This unexpected move was also clearly designed to show the seriousness of the Chancellor’s intent to improve the growth potential of the UK economy.?

"The reversal of the 1.25% increase in the dividend tax rate from 2023, designed to boost the supply side of the economy, will benefit any taxpayer receiving dividends and represents a double boost for any additional rate taxpayers who fall into that category."

The changes announced today - along with yesterday’s announced reversal of the National Insurance Contributions increase - mean that Britain’s headline personal tax rates will stand out internationally. The theory is that more skilled people and businesses will be attracted to work and invest in the UK, and by allowing the economically active to keep more of their income this will over time increase the overall tax take.

Retail and hospitality sectors

Commenting on the retail and hospitality implications of the Mini Budget, Lisa Hooker , Leader of Consumer Markets Lead at PwC, said:

“Retail, consumer and leisure companies are facing a perfect storm of headwinds with a likely contraction in real consumer spending and inflation across the cost base; not just energy but wages and commodities together with volatility in currencies. Any help to boost spending or contain costs is therefore welcome. The tax reductions and investment for growth should help the consumer longer term and short term energy cost support is important but the sector is still waiting to hear about any other cost measures such as business rates."

They will be holding their breath until the main budget given the risk around increasing rates from inflation.

Eleanor Scott , Hospitality & Leisure Director, Strategy & commented on some welcome news to a sector facing a number of ongoing challenges:?

“The hospitality sector has been hit by wave after wave of challenges, with multiple cost pressures pre-COVID, some of the severest operating restrictions of any sector during the pandemic, ongoing staffing challenges and now high inflation and the prospect of a consumer downturn. UK Hospitality has reported that three in five operators are not currently profitable and around 20% are concerned about surviving the coming period. In that context, the support measures announced will be very welcome.?

"The alcohol duty freeze will be welcome to the hospitality industry, and give some much needed support as it faces challenges from more cautious consumer spending, ongoing staffing challenges and inflation across its cost base.”

Stamp Duty

With news of a cut to stamp duty announced in the mini-budget,?Jamie Durham, economist at PwC, said:

“Reducing the cost of moving home is likely to both stimulate additional demand and allow people to pay more by freeing up cash for a deposit. After a hot housing market over the last couple of years, the decision to permanently cut stamp duty could push house prices up even further.?

"This tax cut will make it easier for first-time buyers to get onto the property ladder, particularly in more expensive regions like London. This appears to be a positive change for first time buyers, and offers them more choice, as the nil-rate threshold has risen by more than average house price since the threshold was last adjusted.

"The decision to cut stamp duty, and stimulate demand, comes despite the market being primarily constrained by supply. While the Government is planning to release new land and reform the planning system, these are not likely to increase supply materially in the short term."

However, this move does need to be considered in the context of the current inflationary environment. With the base rate reaching a 14-year high this week and the end of the Help to Buy equity scheme next year, the market was widely expected to cool over the coming months. While today’s announcements may go some way to offset that, record house prices will mean many households will still be worried about whether they can afford the monthly repayments on a new home at higher interest

Tax policy

Stella Amiss , our regional tax leader at PwC, said that the day’s announcements set out a?fundamental change of direction?with echoes of an approach not seen since the 1980s:

"The Chancellor has been clear that the government’s focus is first and foremost on measures aimed to stimulate growth?leading to what is a radical set of tax measures for any budget?- let alone a mini one. Those looking for stability will be comforted by the fact that many of the tax changes will be permanent, however the Chancellor was also clear that more reforms will follow - so all eyes will be on the Autumn Budget."

What is clear is that?today’s mini-Budget will draw close attention not just from UK businesses but globally. The government has proven willing to forge a new path by breaking current trends and are introducing substantial tax cuts in the middle of a volatile economic landscape. The eye-catching and, in the case of the new 40% single rate of higher tax, unexpected nature of the reforms announced today show that?the Chancellor wants the UK to be noticed.

Economic outlook

Commenting on the economic outlook following the Chancellor's Mini Budget, Barret Kupelian , senior economist at PwC, said:

“Today’s fiscal statement focused on boosting economic growth with supply side reforms and tax cuts at the core of this, reminiscent of some of the Budgets of the 1980s. In contrast to previous years, the words “fiscal rules” were not mentioned even once in the Chancellor’s speech.

“On tax policy, almost all of the announced policies cut taxes on workers and businesses. For workers, the reversal of the National Insurance Contributions and the cancellation of the Health and Social Care Levy will be welcome, at least in the short-term, as it will help to ease the effects of lower real wages. For corporations, the planned increase in the rate will not go ahead. According to the Government’s figures, putting together these policies will cumulatively cost around ￡144 billion until FY26/27.

“Today the Government also released its new Growth Plan. The Chancellor’s main gamble is that his announcement will boost short-term growth and raise the trend growth rate to 2.5% per year. This is a herculean task. To achieve higher levels of sustainable economic growth rates requires a broad set of tools and policies. Crucially, it requires addressing the root cause of low productivity in the UK.

“Yesterday’s statement of the Monetary Policy report said that the Bank would “respond forcefully” to inflationary pressures from the demand side of the economy. In the next few weeks we expect the Bank of England to come under more pressure to increase the pace at which it is tightening monetary policy. Unfunded tax cuts, such as those announced today, tend to help grow demand in the short-term but are also inflationary, particularly when there is limited spare capacity in the economy.

“Finally, financial markets’ initial reaction to the announcement today appears to be confirming our view on how the Bank of England is likely to react in the coming weeks. Short and medium-term gilts have spiked whilst the Debt Management Office (DMO) has announced gilt sales of c. ￡ 200 billion for 2022/23. In the absence of a rapid bounceback in growth rates and the Bank cutting back its purchases of gilts, it is looking likely that the government will have to pay much more to fund its future deficits.”??

IR35

Commenting on the IR35 reforms Julian Sansum, employment tax lead at PwC, said:

“The Chancellor announced a repeal of the IR35 reforms. Since the wide scale rollout of new rules to the private sector in 2021, we have seen differences in the way that organisations interpret the rules leading to inconsistencies across sectors. Whilst the new legislation was estimated to generate an approximate ￡1bn annually, there needed to be consideration of the costs and challenges borne by businesses and workers through its implementation. The large liabilities and fines now hitting the public sector, which implemented the rules a few years before the private sector, show that this isn’t simple. The repeal will remove that complexity for organisations."

The removal of the bankers' bonus cap

Responding to the announcement of the removal of the cap to bankers’ bonuses, Phillippa O'Connor , reward and employment leader at PwC UK, comments:

“Removing the bankers’ bonus cap will deliver greater flexibility for UK banks in how they structure the remuneration packages of their senior staff and therefore the potential to reduce fixed costs, both of which arguably could drive competitive benefit to the UK. However, this flexibility will also give rise to numerous policy, legal and operational issues which firms will need to consider in detail before making any changes. It will not be easy for firms to unwind the increase in fixed pay which has been embedded in pay structures and policies over the last 8 years. Today's announcement is therefore likely to be the beginning of the process to change the bonus cap rules, which may bring both logistical and reputational challenges along the way.”