What time is the mini-Budget tomorrow? Plus, what to expect from Truss's tax cut plans
Chancellor Kwasi Kwarteng is expected to unveil a package of tax cuts this week which could save households thousands of pounds amid the cost-of-living crisis.
The new Prime Minister Liz Truss has delivered on her promise of an emergency “mini-Budget” to take place on Friday September 23 at around 09:30am.
Throughout her leadership campaign, Ms Truss repeatedly pledged to cut taxes, and a reversal of the National Insurance rise has already been confirmed as coming into force from November.
But experts warn that households are unlikely to reap any immediate benefit from any other big-hitter tax cuts.
The tax changes announced this week will be the third change to employee’s take home pay in less than a year, following the NI increase and threshold change in April and July respectively.
The administrative complexity of HM Revenue and Customs introducing another tax change could threaten to delay cuts, said Nimesh Shah, of tax firm Blick Rothenberg.
The Government has confirmed the 1.25 percentage point increase to National Insurance will be reversed from November 6. The Prime Minister has made no secret of her plan to reverse the tax rise, which came into force in April under former chancellor Rishi Sunak and equated to a 10pc tax jump for many workers.
The planned Health and Social Care Levy has also been cancelled, which was due to replace the National Insurance rise as a new standalone tax from April 2023.
The Government has estimated scrapping the rise will save taxpayers an average of £330 a year in the tax year 2023-24, alongside a saving of £135 for the remainder of the current tax year.
The tax cut is universal, but higher earners will pocket the biggest savings as they pay more National Insurance than those with smaller incomes.
Someone earning £50,000 will save £468 a year in tax if the rise was reversed, whereas someone earning £180,000 would get an annual tax cut of more than £2,000, according to analysis by Blick Rothenberg.
The National Insurance increase went ahead in April despite widespread calls for it to be delayed or cancelled as households struggled with soaring inflation, so reversing the rise will curry favour with the electorate.
Sarah Coles, an analyst at Hargreaves Lansdown, said: “Tax cuts will free up more money to help people make ends meet in the short term, which could make an enormous difference in the coming months to those who are already running on empty.”
In March of this year Mr Sunak froze tax thresholds until 2026 – including the personal allowance, basic-rate threshold, capital gains tax allowance and inheritance tax threshold – before inflation surged into double digits.
The move was quickly branded a “stealth tax” and reversing the freeze could provide the new Chancellor and Prime Minister with a quick win amongst squeezed households.
Mr Kwarteng and Ms Truss are reportedly considering speeding up the 1p cut to income tax – a drop in the basic rate of tax from 20p to 19p in the pound – currently scheduled to take place by 2024.
Mr Sunak confirmed the move when he was Chancellor earlier this year and rumours are swirling that the move will now be fast-tracked.
Ms Truss has also reportedly mulled boosting the higher-rate, 40pc, income tax threshold to £80,000 from its current £50,270, something that Boris Johnson, her predecessor, promised to do in 2019.
Someone earning £80,000 would save £6,789 a year if Mr Kwarteng increased the income tax threshold this week alongside the reversal of the National Insurance rise.
Anyone earning £60,000 would save £2,539 a year, but below this income threshold savings would be minimal. Someone on £50,000 would save £468 a year, while anyone earning £30,000 would save just £218.
Inheritance tax raked in a record £6.1bn for the Government in the most recent tax year, with millions of families being caught by the hated tax because of its threshold freeze and higher property prices.
It was once seen as a charge on the wealthy, but Ms Truss committed to a review of inheritance tax during her leadership campaign to spare ordinary households from being stung by the death levy.
Mr Shah said: “Party members and traditional Conservative voters have a deep disdain for inheritance tax, and Ms Truss may be tempted to abolish it completely.
“But there would need to be something in its place and there could be revived calls to introduce a wealth tax. Reforms to capital taxes would require a detailed consultation, and the Government may not have enough time to do anything so dramatic with the next election scheduled for Spring 2024.”
An extension to the marriage allowance is one of the more generous tax giveaways mooted by Ms Truss which will benefit lower earners more than wealthier families.
In July, she announced plans to allow couples to transfer their entire personal tax allowance, the amount a person can earn before they start to pay income tax, between each other should she become Prime Minister.
The marriage allowance is currently capped at a transfer of £1,260 for basic-rate taxpayers, whereas the personal tax allowance currently stands at £12,570.
By passing a stay-at-home parent's personal allowance to a working partner, couples could save as much as £2,500 a year. The tax break is expected to be in force by Christmas, although it may feature in the bigger Budget later this year rather than this week’s mini fiscal statement.
Mr Kwarteng is also considering cutting personal taxes and wateringdown regulation in certain UK areas in a bid to boost economic growth, it has been reported.
The location of these “investment zones” would be hand-picked by the Government and residents and businesses would benefit from lower taxes and red tape.
No finer details have been revealed yet, but the concept of “full-fat freeports” were a staple of the Prime Minister’s leadership campaign.
Last month The Telegraph revealed Ms Truss was considering cutting VAT from 20pc to 15pc across the board in a bid to tackle the cost-of-living crisis.
VAT is levied on most products and services and all households and cutting it has been branded by some as the “nuclear” option.
Everyone would see an immediate drop in their spending if a cut was introduced – although again wealthier households would save the most in pounds and pence as a result of their bigger spending budgets.
Ms Coles added: “While every household will be grateful for any additional help, fuelling more spending could push prices up for longer and dent our longer-term financial resilience.
“This in turn could persuade the Bank of England to raise interest rates, which makes life even harder for those with variable rate debts and mortgages.”