The Budget 2022 was announced last week by the Chancellor of the Exchequer. This is an important event that happens every year, and it impacts everyone in the UK. Here is a summary of all the key points from this year's announcement!
What is the Budget?
The Budget is an annual event where the Chancellor of the Exchequer sets out the government's spending plans for the upcoming year. This includes things like how much money will be spent on public services, what tax rates will be, and so on. The Budget also has a big impact on businesses and individuals, as it can affect things like how much you pay in tax, or what benefits you're entitled to.
Why Should I Care?
This budget is important because it sets the economic priorities for the UK government. The decisions made in the budget will impact everyone in some way, so it's important to be aware of what was announced. These pertain in particular to financial decisions you might be making over the coming year, and usually give some indication as to what one might be able to expect from the UK economy.
The Budget 2022: Headlines
The main points from this year's budget are:
- Growth Target set at 2.5% - a legislative programme of supply-side reforms are aiming to stimulate 2.5% growth rate for the UK economy, and a narrowing of the productivity gap to France & Germany
- Rishi Sunak's tax hikes scrapped - Kwarteng reversed three proposed increases, the corporation tax hike from 19% to 25%, the bank surcharge rate will remain at 8% and the dividend tax increase which was set for a 1.25% increase will also not go forward.
- Top tax rate abolished and banker bonus cap scrapped - there will be no more 45% tax rate for high earners. 40% will now be the highest rate of tax payable in the UK. The one percentage point cut to the basic rate of income tax from 20% to 19% will also be brought forward to April 2023.
- Stamp duty cut - the threshold on which stamp duty is payable will double from £125,000 to £250,000. This will also increase for first time buyers from £300,000 to £425,000.
- Environment & Infrastructure - surprisingly, there was a strong plan to both reform the infrastructure planning system, and to prioritise 138 key projects. These include roads, nuclear, renewables, hydrogen and oil & gas. The effective ban on new onshore wind projects in England will also be lifted, putting them on par with other key infrastructure projects.
- Defined Contribution Pension Charge Cap regulations brought forward - nothing concrete yet, just plans to bring forward draft regulations to reform the pensions regulatory charge cap.
- New investment zones - 38 local authorities in the UK are in discussion to create 'investment zones' which will benefit from a host of tax incentives and fast-tracked construction planning.
- Startup investing schemes improved - both EIS and VCT schemes have been renewed beyond their 2025 deadlines in a bid to stimulate UK entrepreneurship. The Seed Enterprise Investment Scheme has also been increased to £250,000 for startups!
- Cancellation of planned increases to alcohol duty - raise a glass! Plans to increase alcohol duty on wine, beer and spirits have been scrapped.
- Benefits squeeze - given the fall in labour market participation rates, the Chancellor has responded with a controversial sanction for those on benefits who don't return to work. There's also support to over-50s in the workforce to encourage them not to leave the labour market.
How will this impact the economy?
What's probably more important to most is the accompaniment of an announcement that household energy bills will be capped at £2500 for a normal household.
The Guardian has done a great scenario analysis on how this might affect people in different circumstances materially, telling you exactly how much better or worse off they will be.
Of course, high earners and those in the position to buy a property are those who will benefit the most, although the fall in national insurance contributions and basic rate tax does help everyone.
Despite the tax cuts across the board in an effort to stimulate the economy, the evidence is fairly damning that the further up the pay or wealth scale one goes, the more this budget benefits you. There will also be the obvious comments around the bankers' bonuses but insofar as the effects on the general populus, this is fairly insignificant. For any further discussion on how this might affect you, feel free to reach out to one of the team individually.