Business news 23 September 2022
James Salmon, Operations Director.
Today’s Mini Budget. Kwarteng says tax cuts will break ‘cycle of stagnation’. NI rise to be reversed in November. BoE raises interest rates to 14-year high. And more business news.
Today’s Mini Budget
The Government will announce its mini budget today. Although most of it is already out there. And from the sounds of the tax cuts, its anything but mini.
Kwarteng says tax cuts will break ‘cycle of stagnation’
Kwasi Kwarteng will today announce that Britain must break the “vicious cycle of stagnation”, as he outlines £50bn of tax cuts. In his mini-Budget this morning, the chancellor will present 30 measures intended to drive economic growth.
These will include reversing the rise in National Insurance payments, freezing corporation tax and cutting stamp duty.
The chancellor will tell the Commons that he wants to usher in a “new era focused on growth”, adding: “That is how we will deliver higher wages, greater opportunities and sufficient revenue to fund public services, now and into the future. That is how we will compete successfully with dynamic economies around the world. That is how we will turn the vicious cycle of stagnation into a virtuous cycle of growth.”
Paul Johnson, the director of the Institute for Fiscal Studies, said the fiscal statement would be “the biggest tax-cutting fiscal event since Nigel Lawson’s budget of 1988”. However, the Telegraph says that despite the tax cuts and heavy spending to hold down energy bills, the average person will still feel worse off this year than last year thanks to surging inflation eroding living standards.
NI rise to be reversed in November
A 1.25% rise in National Insurance will be reversed from 6 November, and a planned levy to fund health and social care will be scrapped. Chancellor Kwasi Kwarteng made the announcement ahead of today’s mini-Budget. The NI rise was introduced in April under ex-Chancellor Rishi Sunak, but during the Tory leadership race Liz Truss pledged to change it. The funding for health and social care will now come from general taxation. The Treasury said the change would save nearly 28m people an average of £330 per year. It added that most employees will get the tax cut in their November pay packets, with some getting it in December or January “depending on the complexity of their employer’s payroll software”. About 920,000 firms will get a tax reduction of nearly £10,000.
BoE raises interest rates to 14-year high
The Bank of England has raised interest rates from 1.75% to 2.25% and indicated that Britain’s economy is now in recession.
A majority of the Bank’s nine-member monetary policy committee voted to increase the key base rate by 0.5 percentage points, judging that the risks of inflationary pressures becoming entrenched outweighed the short-term dangers to the economy. Of the 9 Monetary Policy Committee members, 1 voted for a 0.25% increase, 5 voted for a 0.50% increase, and 3 members wanted to take a more aggressive stance, voting for a 0.75% increase.
The central bank had previously expected the economy to grow between July and September but it now believes it will shrink by 0.1%. The Bank’s seventh rate rise in a row takes borrowing costs to their highest level since 2008. FSB chairman Martin McTague said the “eye-watering” increase was a “clear illustration of the scale of the challenge facing small businesses”.
Uk stock markets fell in response.
The BOE now expects inflation to peak at just under 11% in October, down from a previous forecast of 13%.
One in five facing higher income tax rate by 2025
Economists have warned that an extra 1.6m people will be dragged into the higher rate of income tax by 2025 unless Kwasi Kwarteng scraps Rishi Sunak’s freeze on thresholds. Soaring inflation combined with the decision to hold income tax bands for four years means 7.7m people will end up paying the 40% rate in 2025, according to the Institute for Fiscal Studies. It means one in every five taxpayers will be in the higher bracket, and amounts to 14% of all adults. The higher rate was initially expected only to hit those with very large incomes. Thirty years ago, only 1.7m people, or 3.8% of all adults, incurred the charge. Xiaowei Xu, at the IFS, said: “Because of the high rate of inflation that we are seeing, this has ended up being a much bigger policy than was initially forecast.”
Begbies Traynor hails ‘good start’ to fiscal year
Begbies Traynor has reported a “good start” to the financial year following a rise in insolvency work involving larger and mid-size companies. Ahead of its annual general meeting today, the firm said it had traded in line with forecasts during the three months to the end of July thanks to strong activity levels across both its operating segments. Begbies said it was confident of achieving full-year adjusted pre-tax profits of £19.7m to £20.6m.
Royal Mail
Royal Mail said after five months of talks, it has not been able to reach an agreement with the Communication Workers Union and hopes to take the union to the Advisory, Conciliation and Arbitration Service. The CWU is the main trade union for the telecommunications and postal delivery industries in the UK. Members of the union have organised a series of strikes against Royal Mail, in a worsening dispute over pay and conditions.
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