Two early announcements have set the scene for a tax-cutting mini-Budget.
A statement on Thursday afternoon revealed that the chancellor will reverse the 1.25 percentage point increase to income tax on dividends first introduced in April 2022 as part of the scrapping of the health and social care levy. The dividend tax cut will come into effect from April 2023 and is expected to save dividend taxpayers an average of £345 next year.
The Treasury said that the reversal of the dividend tax rise “signals renewed support for entrepreneurs and investors as part of the government’s drive to grow the economy and improve the standard of life for families across the UK”.
The announcement formed part of the Treasury's confirmation that the chancellor will reverse the 1.25 percentage point rise in National Insurance and scrap the 'health and social care levy' that was due to replace it in April next year. Kwarteng confirmed that funding for health and social care services will be protected and will “remain at the same level as if the levy were in place”, implying that savings will be found from existing budgets.
In a statement, Kwarteng said: “taxing our way to prosperity has never worked. To raise living standards for all, we need to be unapologetic about growing our economy.”
“Cutting tax is crucial to this”, he added.
What to expect from the mini-Budget
The mini-Budget will focus on policies that chancellor Kwasi Kwarteng hopes can propel the economy to his target of 2.5 per cent annual economic growth. The chancellor is expected to cancel a planned increase to corporation tax and there is speculation that a planned 1p reduction in income tax could be brought forward. Changes to stamp duty are also widely anticipated.
The statement is also likely to provide details on how parts of the UK can bid to become ‘investment zones’, a status that will likely involve reduced tax rates for businesses, and perhaps for individuals. In addition, the chancellor is said to be considering targeted VAT cuts to vulnerable firms, as well as a top up in energy subsidies for businesses via an increase in business rates relief. There have also been suggestions the government will scrap the cap on bankers’ bonuses as part of a move towards deregulating the City of London.
The government is likely to use the announcement to detail how it will pay for the energy price guarantee scheme it announced for households and businesses earlier this month, which is estimated to cost around £150bn. Analysts at Deutsche Bank expect the changes to NICs and corporation tax alone to cost the chancellor an additional £33.5bn a year.
Unlike a full budget, the fiscal statement will not be accompanied by forecasts from the Office for Budget Responsibility (OBR), nor will the watchdog independently verify the Treasury’s cost estimates.
