Blog: Household Finances: Mini-Budget Cuts Taxes And Stamp Duty – Forbes

Latest information on the cost of living crisis as it affects households and individuals across the UK

23 September: Chancellor Promises ‘New Approach For New Era, Focused On Growth’

Increases to Stamp Duty allowances and cuts to income tax featured prominently in today’s fiscal statement by Kwasi Kwarteng MP, Chancellor of the Exchequer.

He also confirmed the package of measures designed to reduce the impact of rising energy bills for households and businesses. He said the action to control prices would cost £60 billion over six months.

Yesterday, the Treasury released details of how the increase to National Insurance Contributions (NICs) imposed earlier this year will be reversed from 6 November. And the planned introduction of an income tax levy to fund health and social care in April 2023, which would have replaced the temporary NICs hike, will no longer happen (see story below).

Mr Kwarteng said the government will pursue economic growth at an annual rate of 2.5%, saying the government is adopting “a new approach for a new era”. Growth in the second quarter of 2022 was minus 0.1%, and yesterday the Bank of England said Q3 growth is also likely to be negative.

Two successive quarters of negative growth is taken to signal a recession.

To fuel growth, the government is proposing almost 40 new low-tax investment zones across England, and says it will work with devolved authorities in Scotland, Wales and Northern Ireland, to extend the scheme across the country.

The planned increase in Corporation Tax from 19% to 25%, slated for April 2023, has been pulled. The Chancellor said the move will ensure the rate will continue to be the lowest in the G20 group of nations.

Mr Kwarteng is also removing the cap on banker bonuses to encourage growth in the financial services sector. The cap says a bonus cannot be higher than twice a banker’s salary without shareholders’ agreement.

Here are other main points from today’s event:

  • Basic rate of income tax to fall from 20% to 19% next April, a year ahead of schedule
  • Additional tax rate of 45% on earnings over £150,000 per annum to be scrapped from April, benefiting an estimated 630,000 taxpayers
  • Exemption from Stamp Duty in England and Northern Ireland will apply to first £250,000 of property value, up from £125,000
  • First-time buyers will be exempt from Stamp Duty on first £425,000, up from £300,000
  • First-time buyer property value to be eligible for exemption up from £500,000 to £625,000
  • As announced, Energy Price Guarantee will limit average household energy bills to £2,500 per annum for two years from 1 October 2022
  • Every household in the UK will receive a £400 discount off their electricity bills between October and March 2023
  • Energy Bill Relief Scheme will provide equivalent relief to businesses, charities and public sector organisations such as schools and hospitals
  • Planned alcohol duty increases will be scrapped
  • VAT-free shopping for tourists to the UK will be introduced via a digital scheme
  • Universal Credit will be reformed to encourage recipients to look for paid employment.

Universal Credit

Mr Kwarteng announced changes to the Universal Credit (UC) scheme designed to encourage more claimants into work. 

The Administrative Earnings Threshold — the amount UC recipients must earn before being moved from the Intensive Work Search regime to the Light Touch regime — is set to be raised from its current value of £355 a month for individuals or £567 a month for couples. 

The new threshold, which builds on an increase already planned for 26 September, will be 15 hours per week at National Living Wage for individuals (approximately £617.50 per month) and 24 hours a week (approximately £988 per month) for couples. It will come into effect from January 2023.

Following the change, roughly 120,000 Universal Credit claimants will be moved into the Intensive Work Search Regime, which requires them to take actions such as attending appointments with a work coach and submitting job applications. If these criteria are not met, claimants’ benefits are cut.

Claimants over 50 are also set to receive additional tailored support provided through job centres, with the aim of boosting earnings prior to retirement.

Investment zones

The Treasury has issued plans for the introduction of low-tax investment zones across the UK, with 38 locations in England listed so far.

The zones will see planning regulations relaxed, with businesses in the areas set to benefit from lower taxes in an effort to boost investment, industrial growth, employment rates and home ownership.

In relation to the move the Chancellor said: “To support growth right across the country, we need to go further, with targeted action in local areas.

“We will cut taxes. For businesses in designated tax sites, for 10 years, there will be accelerated tax reliefs for structures and buildings and 100% tax relief on qualifying investments in plant and machinery.”

Businesses in these locations will benefit from full Stamp Duty relief for land and buildings for commercial use or residential development. 

The local authorities listed are: 

  • Blackpool Council 
  • Bedford Borough Council 
  • Central Bedfordshire Council
  • Cheshire West and Chester Council 
  • Cornwall Council 
  • Cumbria County Council 
  • Derbyshire County Council 
  • Dorset Council 
  • East Riding of Yorkshire Council 
  • Essex County Council
  • Greater London Authority 
  • Gloucestershire County Council 
  • Greater Manchester Combined Authority 
  • Hull City Council 
  • Kent County Council 
  • Lancashire County Council 
  • Leicestershire County Council 18. 
  • Liverpool City Region 
  • North East Lincolnshire Council 
  • North Lincolnshire Council 
  • Norfolk County Council 
  • North of Tyne Combined Authority 
  • North Yorkshire County Council 
  • Nottinghamshire County Council 
  • Plymouth City Council 
  • Somerset County Council 
  • Southampton City Council 
  • Southend-on-Sea City Council 
  • Staffordshire County Council
  • Stoke-on-Trent City Council 
  • Suffolk County Council 
  • Sunderland City Council
  • South Yorkshire Combined Authority 
  • Tees Valley Combined Authority
  • Warwickshire County Council 
  • West of England Combined Authority 
  • West Midlands Combined Authority 
  • West Yorkshire Combined Authority.

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September 22: Kwasi Kwarteng Reverses NIC Hike, Scraps Health & Care Levy Due Next April

Ahead of Friday’s mini-Budget, the Chancellor has announced that the 1.25 percentage point increase in National Insurance contributions (NICs) introduced last April, and partially reduced in July, will be fully reversed in November.

The government says most employees will receive a cut to their NICs directly via payroll in their November pay. Some will receive it in December or January, depending on their employer’s payroll software.

The NIC payment thresholds which were raised in July to remove 2.2 million lower-paid workers from paying any NICs will remain in place at today’s levels. For people on pay of less than £12,570, this means they will still not pay any tax on their earnings.

The higher NIC rates were due to return to 2021-22 levels in April 2023, when a separate Health and Social Care Levy was due to take effect, adding 1.25% to income tax bills. 

Chancellor Kwasi Kwarteng MP has now pulled the plug on the Levy, which would have raised £13 billion annually. However, he has said funding for health and social care services will be protected and will remain at the same level as if the Levy were in place.

The costs will be met from general taxation.

The government says that, taken together, the changes will mean almost 28 million people will pay £135 less this tax year and £330 less in 2023/24, with 920,000 businesses saving an average of £10,000 in 2023 as they will no longer pay a higher level of employer National Insurance.

The Chancellor’s statement tomorrow – dubbed his ‘growth plan’ – is expected to confirm that increases to dividend tax rates will be scrapped from April 2023. 

Income tax on dividends was increased by 1.25 percentage points in April 2022 so that those receiving dividend income also helped fund health and social care. Removing the increase will, says the government, save those who pay tax on dividends an average of £345 next year.

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16 September: More Households Feeling Squeeze As Costs Rocket

A survey of 4,963 households the Office for National Statistics has confirmed that 90% of Brits are seeing their cost of living increase, with four in five adults worried about the impact of higher bills.

The survey, covering the period 31 August to 11 September, found:

  • 87%) adults reported that their cost of living had risen over the past month (91% in the previous period, 17 to 29 August)
  • when the question was first asked in November 2021, the figure was 62%
  • 82% adults reported being very or somewhat worried about rising costs of living 81% in the previous period)
  • when the question was first asked in April 2022, the figure was 74%
  • 48% of adults who pay energy bills found it very or somewhat difficult to afford them (45% in the previous period)
  • 29% of adults reported that they found it very difficult or difficult to pay their usual household bills in the last month compared with a year ago, while just over 21% stated this was very easy or easy.
  • 26% of adults reported being unable to save as much money as usual when asked about how their household finances have been affected in the past 7 days.

The main reasons reported for the rise in the cost of living were:

  • increased price of food shopping (95%)
  • higher gas or electricity bills (78%)
  • the higher price of fuel (71%).

The ONS, the UK’s official data-gatherer, also asked the survey sample about the ways their household finances have been affected in the past seven days. It found:

  • 26% reported being unable to save money as usual 
  • 18% stated that they had to use savings to cover living costs
  • 17% said they had less money available to spend on food
  • 17% reported their savings value is being affected by economic instability.
  • 35% of adults reported that their household finances had not been affected in the past 7 days.

On Friday 23 September, Kwasi Kwarteng MP, Chancellor of the Exchequer, will deliver a mini-Budget setting out how the government plans to tackle the cost of living crisis in general and the impact of rising energy bills in particular.

More detail is expected on the Energy Price Guarantee, announced by the Prime Minister on 8 September, in particular the help to be provided to businesses. We already know that the Guarantee will cap average household bills at £2,500 a year for two years from 1 October.

The Chancellor is also expected to announce a series of tax-cutting measures, including a reduction in national insurance contributions.

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1 August: City Watchdog Bolsters Stance Against Misleading Financial Promotions  

The UK’s financial regulator has finalised tougher rules for the marketing and promotion of high-risk investments, writes Andrew Michael.

Under its new, more robust set of rules, the Financial Conduct Authority (FCA) says that firms approving and issuing marketing material “must have the right expertise”.

The regulator added that firms marketing some types of high-risk investments “will need to conduct better checks to ensure consumers and their investments are well matched”.

According to the FCA, firms also “need to use clearer and more prominent risk warnings”. In addition, certain incentives to invest, such as ‘refer a friend bonuses’, have now been banned.

As part of its Consumer Investments Strategy, the FCA says it wants to reduce the number of people who are investing in high-risk products that do not reflect their risk appetite. In other words, taking out investments that are inappropriate for a certain individual’s financial situation.

Although the FCA warns consumers regularly about the financial dangers of investing in cryptocurrencies, the regulator’s new rules will not actually apply to cryptoasset promotions.

But the FCA said that once the UK government has confirmed in legislation how crypto marketing is to be brought within its remit, it will then publish final rules on the promotion of cryptoassets.

These are expected to follow the same approach as those for other high-risk investments.

FCA director Sarah Pritchard said: “We want people to be able to invest with confidence, understand the risks involved, and get the investments that are right for them which reflect their appetite for risk.”

“Our new simplified risk warnings are designed to help consumers better understand the risks, albeit firms have a significant role to play too. Where we see products being marketed that don’t contain the right risk warnings or are unclear, unfair or misleading, we will act,” Pritchard added.

Nathan Long, senior analyst at the investment platform Hargreaves Lansdown, said: “With a sharp focus on understanding consumer behaviour, the FCA is introducing pragmatic rule changes to clamp down on retail investors buying high risk investments.”

Long added: “The attention has rightly been placed on improving consumer understanding at the point of their decision making.”

29 July: More Protection For Funeral Plan Customers As Regulation Gets Underway 

Companies that offer pre-paid funeral plans will be regulated by the Financial Conduct Authority (FCA) from today, offering greater protection to customers. 

Funeral plans are designed to cover the main costs of cremation or burial, so that your family are not left with the bill after you die. Plans can be paid for upfront, as a lump sum or in monthly instalments of between one and 10 years. 

Regulation will ban firms from cold calling potential customers, and from making commission payments to intermediaries such as funeral directors. 

Providers will also be required to deliver funerals to all customers, unless they pass away within the first two years of taking out the plan, in which case a full refund must be offered.

FCA regulation also brings funeral plans under the Financial Services Compensation Scheme (FSCS), meaning consumers can now claim back their money up to £85,000 if a provider goes bust, while recourse will be available under the Financial Ombudsman Service (FOS) if a customer believes they have not been treated fairly by a provider.

Complaints about issues that occurred prior to FCA regulation can be raised, so long as the provider was registered with the Funeral Planning Authority (FPA) at the time.

Majority of market now regulated

So far, 26 funeral plan providers have been authorised by the FCA, including the UK’s largest providers, Co-Op Funeral Plans Limited and Dignity Funerals Limited. 

These newly-authorised firms account for 1.6 million plans — 87% of the UK market. Providers that have not been authorised have until 31 October 2022 to either transfer plans to an authorised firm, or refund customers. 

Emily Shepperd, executive director of authorisations at the FCA said: “We have worked tirelessly to assess funeral plan providers, under our robust authorisation process. We are pleased that 87% of the market is now under regulation. 

“With our new rules in place, consumers will be better protected when they need it the most.”

The FCA advises customers to check whether their provider has been authorised. If not, they should get in touch with the provider to inquire about their plan.

27 July 2022: FCA Consumer Duty Rules Tighten Protections, End ‘Rip-Off’ Charges

UK regulator, the Financial Conduct Authority (FCA), is introducing rules designed to protect customers from being ripped off and to ensure they are treated fairly and get the support and service they need.

The FCA says its new Consumer Duty “will fundamentally improve how firms serve consumers. It will set higher and clearer standards of consumer protection across financial services and require firms to put their customers’ needs first.”

It will require firms to: 

  • end rip-off charges and fees 
  • make it as easy to switch or cancel products as it was to take them out in the first place 
  • provide helpful and accessible customer support, not making people wait so long for an answer that they give up 
  • provide timely and clear information that people can understand about products and services so they can make good financial decisions, rather than burying key information in lengthy terms and conditions that few have the time to read 
  • provide products and services that are right for their customers  
  • focus on the real and diverse needs of their customers, including those in vulnerable circumstances, at every stage and in each interaction.

Among the effects of the new requirements, which will be phased in from July 2023, will be firms being obliged to offer all customers their best deals, rather than using them to tempt new customers. This rule is already in place for car and home insurance.

The reverse will also be true in that firms will be expected to make their best deals available to new customers.

The Duty is made up of an overarching principle and new rules that will mean consumers should receive communications they can understand, products and services that meet their needs and offer fair value, and they get the customer support they need, when they need it. 

The FCA says the new environment should foster innovation and competition. It says it will be able to identify practices that don’t deliver the right outcomes for consumers and take action before practices become entrenched as market norms. 

Sheldon Mills at the FCA said: “The current economic climate means it’s more important than ever that consumers are able to make good financial decisions. The financial services industry needs to give people the support and information they need and put their customers first. 

“The Consumer Duty will lead to a major shift in financial services and will promote competition and growth based on high standards. As the Duty raises the bar for the firms we regulate, it will prevent some harm from happening and will make it easier for us to act quickly and assertively when we spot new problems.”

6 July 2022: Struggling Households Must Seek Help – As Worse To Come

Households struggling financially as a result of the deepening cost of living crisis, are failing to seek available support due to lack of understanding or feelings of embarrassment.

Worry, shame and fear

According to a report published today by the financial regulator, the Financial Conduct Authority (FCA) and MoneyHelper, a government-back online advice service, 42% of borrowers who had ignored their lenders’ attempt to contact them had done so because they felt ‘ashamed’.

It also found that two-in-five (40%) people who were struggling financially mistakenly thought that talking to a debt advisor would negatively impact their credit file.

Other reasons for failing to address financial problems included doubts about the value of contacting lenders, with 20% believing it would not be of any help, and negative perceptions about the potential outcome – with 18% worried about losing access to existing credit and 16% worried about gaining access to credit in the future.

The FCA urged consumers who are struggling to keep on top of their finances to contact lenders to discuss available options, such as a potential payment plan – and to seek free advice from MoneyHelper.

More than half (52%) of borrowers in financial difficulty waited more than a month before seeking help and, of these, 53% regretted not doing it sooner.

Sheldon Mills, executive director of consumers and competition at the FCA, commented, “Anyone can find themselves in financial difficulty, and the rising cost of living means more people will struggle to make ends meet. 

“If you’re struggling financially the most important thing is to speak to someone. If you’re worried about keeping up with payments, talk to your lender as soon as possible, as they could offer affordable options to pay back what is owed.”

Debt advice charities such as StepChange or Turn2Us are also independent and free of charge, and making contact will not damage – or even be visible – on your credit file.

Economic outlook

The FCA’s advice has coincided with a Bank of England report, also published today, which warns that people with high levels of debt will find themselves ‘most exposed’ to further price rises of essential goods such as food and energy – especially if costs continue to climb quicker than expected, or it becomes more difficult to borrow.

The Bank’s Financial Stability Report found that day-to-day living costs have risen sharply in the UK and across the rest of the world, while the outlook for growth has worsened.

It points the blame largely at Russia’s illegal invasion of Ukraine; both countries produce significant proportions of the world’s wheat supply, along with other staples such as vegetable oil, resulting in high  food prices and high levels of volatility in the commodity markets.

The Bank said that ‘like other central banks around the world’ it has increased interest rates to help slow down price rises. However, costs are still soaring with annual inflation – 9.1% for May – at the highest level for 40 years.

Combined with tightening borrowing conditions, repaying or refinancing outstanding debt will become harder, said the Bank. It expects households and businesses to become further stretched in the next few months, while being ‘vulnerable to further shocks’.

Both reports land against the backdrop of a political crisis in which two of the Government’s most senior cabinet members – the Chancellor of the Exchequer, Rishi Sunak and Health Secretary, Sajid Javid – both resigned over lack of faith in the Government’s leadership.

Former education secretary, Nadhim Zahawi has now taken up the reins as Chancellor but will inherit ongoing problems including soaring petrol, energy and food prices as well as the plummeting value of the pound.

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