Following the Prime Minister’s announcement this morning to cap typical energy bills at £2,500 over the next two years, and a predicted Emergency Budget or ‘fiscal event’ in the very near future which is likely to focus on the cost-of-living crisis with measures to help households and businesses navigate the winter months, the new Chancellor, Kwasi Kwarteng, is set for a very busy few weeks ahead.
Although there has been talk of the Prime Minister’s plans during her campaign trail, what can we expect as she gets started in her new role?
What are Liz Truss’ views on tax policy?
During the campaign trail, Liz Truss discussed making tax cuts of over £30bn. As always, campaign-trail promises don’t always bear fruit, but we can look at her voting record on tax for a view on what may be to come. For example, previous voting demonstrates that Liz Truss is firmly in favour of reducing corporation tax and has previously spoken about scrapping the planned increase on 1 April 2023.
Changes to capital allowances are still not clear, especially whether the ‘super-deduction’ will continue – however, there has been talk of boosting support for businesses, so this may be an option given that a wide range of businesses are calling for long term stability in capital allowances to enable planning for future investments. We will hopefully gain clarity on this in the coming weeks.
The Prime Minister has also previously promised to remove EU ‘red-tape’ as part of her long-term plan for economic growth, alongside an ‘overhaul’ of business rates, namely the IR35 rules. During the leadership campaign, Liz Truss announced a ‘complete review of the tax system’.
Voting in favour of capping VAT rates has always been on Truss’ agenda – a reduction in VAT may be one of her first actions as Prime Minister.
Increasing personal income tax allowances has also been discussed, and it is predicted that this may be implemented, alongside increases to the basic rate bands as part of a cost-of-living support package – a costly move for the government if it goes ahead. Truss has also repeatedly committed to reversing the April 2022 National Insurance Contributions (NICs) increase for individuals and employers and may come into force as early as November. However, whether this will include reviewing the NIC threshold increase which took effect from 6 July remains to be seen.
Kwasi Kwarteng – the new Chancellor
Kwasi Kwarteng is a strong ally of Truss and is broadly aligned with her views of windfall taxes, raising income tax thresholds and reductions in Capital Gains Tax. The new Chancellor is taking over the Treasury under enormous pressure, with further predicted tax cuts expected to intensify the holes in public finances.
A cost-of-living support package is expected to be announced by the Chancellor in a matter of weeks – it will be interesting to hear the outcome.
Energy price cap freeze
As we all know, the ongoing energy crisis, in part driven by the Russian invasion of Ukraine, has had a huge impact on businesses on the UK. Far from over, short term solutions to the crisis are complex, as announced today, with the focus of the PM being mainly on households, with ‘equivalent support’ for businesses, charities and public sector bodies limited to six months, and ongoing help limited to ‘vulnerable industries’. A review would decide which businesses should be targeted and is likely to be somewhat contentious.
Emergency Budget – what can we expect?
Rumours of an increase in the small business rate exemption to cover properties with a rateable value of up to £25,000 (therefore reducing business rates), and a possible extension of the existing 50% relief for retail, hospitality and leisure businesses may be considered in the Covid-style support package. A possible temporary reduction in the rate of VAT applied to hospitality and leisure sales may also be an option to support sectors most heavily affected by consumers cutting back on spending.
Businesses can expect to benefit from the reversal of the April 2022 NIC increase and formal confirmation that corporation tax will not rise to 25% in April 2023 as previously announced by Truss, which may provide some reassurance for the longer term.
In terms of help for households, the PM has previously stated that she would prefer to cut taxes than provide direct cash ‘hand-outs’. This may come in the form of cuts to VAT, with rumours suggesting the headline rate being reduced to as low as 15%.
There has also been talk of changes to the transfer of personal allowances between married couples and civil partners. Currently, individuals are able to transfer up to £1,260 to their spouse/civil partner. Truss has proposed that the full allowance should be transferable to aid couples where one spouse is the sole earner.
The next few weeks will be very interesting for many businesses, and individuals, and upcoming announcements may cause you to rethink your short- and medium-term plans. We will be sure to keep our clients and contacts updated as further detail from the government emerges.