Jeremy Hunt has just torn up Liz Truss’s “mini-budget”, after weeks of market turmoil and widespread criticism of the government.
The new chancellor said: “We will reverse almost all the tax measures announced in the Growth Plan three weeks ago that have not starting parliamentary legislation.”
Hunt claimed that his tax cut reversals will save the country around £32bn per year – but here’s what that actually means for you and your bank balance.
1. Two-year energy price cap dropped
Help with energy bills for all households (called the government’s Energy Price Guarantee) will now only go until April. This was a plan to limit the price suppliers could charge for each unit of energy.
It had been intended to carry on for two years, but it will now only help people for six months. Hunt will then look at a “new approach” to prioritise those worse off after April.
This means everyone will still pay for the gas and electricity, and the typical annual bill will not rise above £2,500 until next spring.
2. Income tax cut cancelled
The government had planned to reduce the basic rate of income tax from 20% to 19% by the end of Parliament in 2024. Former chancellor Kwasi Kwarteng (who was fired on Friday) then planned to bring this forward to April 2023.
This policy was originally expected to cost the Treasury almost £5.3bn between 2023 and 2024.
Hunt’s intervention means the basic rate of income tax will stay at 20% indefinitely. So you will see no change in your income tax, even though inflation has meant people have been pushed into higher income tax bands.
3. Spending cuts
Kwarteng was expected to unveil a long list of public spending cuts to fund his tax cuts.
Now that most of these tax cuts have been reversed, people on major benefits including universal credit should expect an increase in what they receive after April.
4. Mortgage rates
Mortgage rates are unlikely to drop immediately because inflation is still high, so lenders will probably “play safe” to see how the markets react. If they reduce their rates now, they could face a major influx of demand from potential buyers.
The Bank of England also has to change interest rates for any substantial change to kick in.
5. Freezing alcohol duties and VAT-free shopping for tourists
The mini-budget had planned to cancel planned increases in the duty rates for alcohol – but these will now continue.
Not proceeding with the freeze is worth approximately £600m per year.
VAT-free shopping for international tourists has also been dropped.
6. Dividend tax rates
The government will now keep 1.25 percentage point increase in dividends tax rates. It had previously planned to cut this, meaning people with investments would get to pay less tax on their profits from various shares.
Plans to reverse off-payroll working reforms introduced in 2017 and 2021 have also been scrapped.
7. Abolition of the health and social care levy is staying
This was the 1.2 hike in percentage points in the National Insurance contributions, introduced by Rishi Sunak (the first chancellor of 2022).
Truss and Kwarteng scrapped this – a move Hunt is planning to continue with. According to the Treasury, this will save almost 28 million people around £330 per year.
8. Stamp duty changes remain
The cost of the property you’re buying will dictate the amount of stamp duty you have to pay.
Kwarteng doubled the price at which stamp duty is paid from £125,000 to £250,000 when he announced the mini-budget.
He also made it so first-time buyers will not have to pay stamp duty on any properties under £425,000 (up from £250,000).
He provided a discounted stamp duty for first-time buyers too, of up to £625,000. This was an increase from the cut off point of £500,000.
These changes are one of the few which will stay in place after Hunt ripped up the mini-budget.
9. U-turns announced before today
Truss had already U-turned on some of the mini-budget policies, such as the 45p tax cut rate and the plan to continue with the increase in corporation tax rate, before Hunt’s emergency statement.
These U-turns will stay in place.
Together, the government estimates these changes in policy will be worth around £32bn a year.