Mini-budget: Pound sinks as chancellor cuts income tax and stamp duty

Summary

In a massive shake-up of the UK's finances, Chancellor Kwasi Kwarteng unveils the biggest tax cutting moves in 50 years
The financial markets react badly, with the pound falling to a fresh 37-year low against the dollar
Kwarteng defends the measures, saying they are "exactly the right thing" to do
The basic rate of income tax is cut to 19p and the 45% top rate of tax for higher earners abolished - although this doesn't apply in Scotland
The threshold before stamp duty is paid in England and Northern Ireland is raised to £250,000 - for first time buyers it's £425,000
The cap on bankers' bonuses is lifted, and a planned rise in corporation tax scrapped
An increase in National Insurance is reversed, and low-tax investment zones will be set up across the UK
Labour's shadow chancellor says the plan "will reward the already wealthy" and will not help those struggling most with rising prices

Live Reporting

Edited by Dulcie Lee

Pound sinks as investors question huge tax cutspublished at 17:12 British Summer Time 23 September 2022
Image source, .
The pound has fallen to a fresh 37-year low against the dollar as financial markets reacted to the biggest tax cutting moves since 1972.
It's fallen to $1.09 after Kwasi Kwarteng outlined a series of economic measures in a massive shake-up of the country's finances - but why?
Paul Johnson, director of the Institute for Fiscal Studies think tank, says: Today, the chancellor announced the biggest package of tax cuts in 50 years without even a semblance of an effort to make the public finance numbers add up.
"Instead, the plan seems to be to borrow large sums at increasingly expensive rates, put government debt on an unsustainable rising path, and hope that we get better growth."
He adds: "Injecting demand into this high-inflation economy leaves the government pulling in the exact opposite direction to the Bank of England, who are likely to raise rates in response.
"Early signs are that the markets – who will have to lend the money required to plug the gap in the government’s fiscal plans – aren’t impressed."
At-a-glance: How will today's changes affect me?published at 17:00 British Summer Time 23 September 2022
Image source, PA Media
Image caption,
Chancellor Kwasi Kwarteng unveiled what he claims are the biggest tax cuts in a generation
We've come to end of our Q&A - thanks to our personal finance journalists Simon Read and Kevin Peachey for explaining some of the changes.
You still may have questions, so let's run through some key points.
If you:
- want to buy a house - you could save money on stamp duty in England and Northern Ireland. See how here
- are in work - you'll save money through cuts to National Insurance if you earn more than £12,570 a year. Generally, you'll save more the more you earn - see how here
- earn between £12,571 and £50,270 year - you'll see a cut in the basic rate of income tax by one percentage point to 19% from April. See how much it'll save you here. Rates are different in Scotland, external
- earn more than £150,000 a year - you will benefit from the abolition of the 45% rate of tax - taking the top rate to 40%. Again, rates are different in Scotland
- run a business - tax on your company's profits (corporation tax) will stay at 19%, after a planned hike to 25% was cancelled
- claim universal credit - you might have your benefits reduced if you fail to take "active steps" to work more. Find out key details here
There are plenty of other measures in the mini-budget, from lifting the cap on bankers' bonuses to cutting alcohol duty.
Get a full rundown here.
What about purchasing stocks and shares?published at 16:55 British Summer Time 23 September 2022
Simon Read
Personal finance reporter
Question: Kieran Casey from Buckinghamshire is asking how the cancellation of stamp duty applies to the purchase of stocks and shares.
Answer: Stamp duty hasn’t been cancelled.
There have been changes made to the Stamp Duty Land Tax, chiefly the rising of the threshold at which the tax is due from £125,000 to £250,000 on domestic property transactions.
The tax applied when people buy shares – known as Stamp Duty Reserve Tax – remains at 0.5%.
More on the duty here, external
Why can't pensioners' triple lock be brought forward?published at 16:49 British Summer Time 23 September 2022
Kevin Peachey
Personal finance correspondent
Question: Cheryl Jemmett from Cardiff asks why can't the pensioners' triple lock be brought forward to October and give us the certainty and guarantee that this government will not go back on this promise again?
Answer: A reminder: the triple-lock is the calculation for the annual rise in the state pension, which is the highest of inflation, average earnings or 2.5%.
The next increase, which takes effect in April, is likely to match inflation of around 10%.
It was not mentioned in the mini-budget. However, Prime Minister Liz Truss, and the deputy prime minister, Therese Coffey, have both promised the triple lock will be honoured again (following a change last time).
Charities have called for state pension and benefit rises to be brought forward, to help people to cope with the rising cost of living, but there is little sign of that happening.
Does the stamp duty cut apply to commercial property?published at 16:43 British Summer Time 23 September 2022
Simon Read
Personal finance reporter
Question: Rob in Blackpool wants to know whether the cut to stamp duty applies to commercial properties?
Answer: No. You have to pay stamp duty when you pay £150,000 or more for non-residential or mixed land or property, such as shops or offices.
Find more details here., external
Will there be universal credit support?published at 16:35 British Summer Time 23 September 2022
Kevin Peachey
Personal finance correspondent
Question: James from Cardiff wants to know whether the government will provide support through universal credit to help people with the cost of living crisis, as it did during the Covid-19 pandemic.
Answer: There is clearly a different set of people in charge, and a different strategy now.
Tax cuts were clearly at the top of the agenda in this mini-budget, rather than benefits.
In fact, the main mention of universal credit was a tightening of the rules, which will see benefit payments reduced if people do not fulfil job search commitments.
Does the stamp duty cut apply to additional homes?published at 16:27 British Summer Time 23 September 2022
Simon Read
Personal finance reporter
Question: Shruti Rajadhyaksha asks: For people owning additional homes, does the stamp duty cut also extend to additional purchases? Why hasn’t there been any stamp duty considerations for buyers who are purchasing properties but are unable to sell their current property due to cladding issues?
Answer: The stamp duty threshold in England and Northern Ireland has risen to £250,000 for all properties, but second home buyers have to pay an extra 3% on the value of the property on top of the standard stamp duty rates.
The cladding issue you mentioned is that many property owners are currently unable to sell their properties until their buildings are proved to be safe.
If you’re in that position and want to buy a new property, the government is yet to make any decision about helping you.
Will high inflation obscure tax cut benefits?published at 16:14 British Summer Time 23 September 2022
Kevin Peachey
Personal finance correspondent
Question: Rod from Bristol is asking whether people will be no better off after today's announcement. He asks whether tax cuts for the general population will be "gobbled up" by fast rising prices, as a result of inflation.
Answer: Timing is key to this question and Rod is correct in pointing to the wider context of this mini-budget (which was not so mini, given it was full of big announcements).
Prices have been rising at their fastest rate for 40 years and, as a result, interest rates have been increased, making borrowing more expensive.
That seems to put the government’s policies at odds with Bank of England policy. The latter may now be even more likely to raise rates.
But – back to timing – price rises are happening now, but tax cuts will come in April. Those cuts are permanent. Of course, politics will govern when or whether they are changed again.
I bought a house last month - can the stamp duty cut be backdated?published at 16:07 British Summer Time 23 September 2022
Simon Read
Personal finance reporter
Question: Margaret Lee asks if the new stamp duty reduction can be applied retrospectively to a house purchase she completed last month.
Answer: Sadly no. The changes in the rate of stamp duty only apply to property transactions that have been completed from 23 September onwards.
So even if you completed yesterday you will miss out on benefiting from the new rates. Sorry.
Why was minimum income tax threshold not increased?published at 15:58 British Summer Time 23 September 2022
Kevin Peachey
Personal finance correspondent
Question: Nigel Caine is asking why the chancellor did not announce an increase to personal allowance - the amount a worker can earn before paying income tax.
Answer: Nigel makes a important point here about a key element of taxation – the earnings levels at which you pay different rates of tax.
They have been frozen, apart from the abolition of the additional rate, and will remain so until the end of the parliament. The personal allowance is the first £12,570 earned a year that is untaxed.
It means people tend to be drawn into a higher tax bracket over time, as they get a pay rise.
That needs to be considered when assessing the impact of tax cuts.
Remember different rules apply in Scotland - see previous question and answer.
What effect will IR35 rule changes have?published at 15:47 British Summer Time 23 September 2022
Simon Read
Personal finance reporter
Question: Andrew Mclean, 55, from Hertfordshire wants to know more about what effect the changes to the IR35 rules - which govern off-payroll working - will have?
Answer: The IR35 rules will be repealed from April 2023, the chancellor said.
The rules were introduced by Conservative governments in 2017 and 2021 to stop the practice of disguised remuneration schemes which it was thought allowed some workers to avoid paying tax and national insurance.
The rules effectively required employers or agents to be responsible for the tax status of contractors rather than the workers themselves, as had previously been the case.
The rules have been widely criticised by contractors and consultants.
Today’s changes should mean workers will once again be responsible for determining their employment status and paying the appropriate amount of tax and national insurance contributions.
Why is stamp duty being cut when interest rates are rising?published at 15:41 British Summer Time 23 September 2022
Kevin Peachey
Personal finance correspondent
Question: Stuart is asking why the government today announced tax cuts - and a stamp duty cut - to keep the housing market moving when the Bank of England yesterday put interest rates up by 0.5%. This is obviously going to slow the housing market, he says, which makes it seem like MPs are giving with one hand and taking with the other.
Answer: It may be that the government has decided to act precisely because of the rise in mortgage rates.
The chancellor will want to keep the housing market active, because it has such a big influence on the rest of the economy.
Not least, that is because people moving home tend to spend – buying new furniture, home improvements and so on.
A stalling housing market, as a result of higher borrowing costs, would not sit well with ministers’ drive for growth.
What about Scotland?published at 15:32 British Summer Time 23 September 2022
Kevin Peachey
Personal finance correspondent
Question: Michael asks how and when the announcements made this morning will affect people in Scotland. He says: I’m worried we’ll get the 'bad' of the reduced government spending via Barnett formula but miss out on the 'good' of reduced tax and stamp duty?
Answer: People in Scotland, and the devolved nations, need to look closely at what this means for you.
The reversal of the National Insurance increase, as well as the cancellation of corporation tax rises, will have a big impact for people and businesses in Scotland.
However, some of the big-bang announcements – notably the cuts in income tax and stamp duty – do not apply in Scotland.
My colleague Douglas Fraser has written more on this here.
How will the mini-budget affect pensions?published at 15:26 British Summer Time 23 September 2022
Simon Read
Personal finance reporter
Question: Grace asks for an explanation in "working class English" on how the mini-budget will affect pensions?
Answer: The income tax cut announced by the chancellor will have a knock-on effect on pensions savings by reducing the amount the government contributes to your retirement pot.
When you pay into a private pension you get tax relief which is based on the rate of income tax you pay. At present a basic-rate taxpayer pays 20% income tax.
Pension tax relief means if they want to put £1 into their pension pot, they only actually need to put in 80p, with the government topping up the extra 20p to make it into a pound.
With the basic income tax rate being cut to 19%, it will mean pension tax relief being cut.
The net effect will be that anyone wanting to put £1 into their pension pot will have to put 81p in, with the government topping up the remaining 19p. I hope that’s clear!
How much will I save from the tax cuts?published at 15:19 British Summer Time 23 September 2022
The fall in the basic rate of income tax from 20% to 19% will benefit more than 31 million people, Chancellor Kwasi Kwarteng said a little earlier.
Taking into account both the income tax cut and the reversal of the 1.25% increase in National Insurance, a person earning £20,000 a year will save £167, according to analysts at accountancy firm EY.
An individual with an income of £40,000 will benefit to the tune of £617 a year and a person earning £60,000 will save £969.
A person on £100,000 will get an extra £1,469.
Learn more on how the tax cut affects you here.
Do these tax cuts only help people with more money?published at 15:13 British Summer Time 23 September 2022
Kevin Peachey
Personal finance correspondent
Question: Kim Dunston, from Cornwall, asks how the changes will help the less well-off? Low income earners don’t pay tax, she says.
Answer: The first £12,570 of a worker’s earnings is not subject to income tax or National Insurance. So anyone earning less than that will not feel the benefit of tax cuts.
There will be a considerable amount of debate about the lack of targeting of many of these measures. They are very broad, and certainly do not aim to specifically help those struggling the most with bills and rising prices at the moment.
But ministers would say that cost-of-living support payments were already in place, and energy bill help was only announced a fortnight ago.
Even so, there is a notable change in strategy here compared with the previous Conservative administration.
When will the stamp duty cut be introduced?published at 15:04 British Summer Time 23 September 2022
Simon Read
Personal finance reporter
Question: John in Colchester is moving house next month and wants to know when the cut to stamp duty - a tax paid when buying a new property in England and Northern Ireland - will be introduced?
Answer: The change in stamp duty took effect from today, Friday 23 September. So if you are completing on buying your home today or any time in the future, you will benefit from the changed rates.
Read the full details here.
It's time to answer your questionspublished at 15:01 British Summer Time 23 September 2022
Our team of experts will soon be joining us to answer your questions about the measures unveiled in the chancellor's statement.
We'll be putting your questions to our personal finance reporter Simon Read and personal finance correspondent Kevin Peachey over the next hour.
Stick with us as they aim to explain how you will be affected by today's announcement.
Devolved leaders criticise mini-budgetpublished at 14:50 British Summer Time 23 September 2022
Devolved leaders have harshly criticised Chancellor Kwasi Kwarteng's mini-budget, accusing the government of growing the divide between the super rich and those already struggling.
"The UK government should be offering meaningful support to those who need it most. Instead, they're giving tax cuts to the rich, bonuses to bankers and protecting the eye-watering profits of energy companies," Wales' First Minister Mark Drakeford wrote in a tweet, external.
He added that the mini-budget "embeds unfairness across the UK."
Scotland's First Minister Nicola Sturgeon accused the government of "incompetence and recklessness" and stated, external that this has led to a divide between "the super wealthy laughing all the way to the actual bank" and the "increasing numbers of the rest relying on food banks".
In a similar vein, First Minister designate of Northern Ireland, Michelle O'Neil tweeted, external: "In short, tax cuts for the super rich and no extra funding for public services & workers."
'More could be done to help families like mine'published at 14:40 British Summer Time 23 September 2022
At a community grocers in Bolton, jobseeker Faye Turner, who is on universal credit, says she’s worried about the tightening of rules as she struggles to find a flexible job that gives her time to care for her children.
"The government could do a lot more to help families like me that are struggling at this time and are worried about the future," she tells the BBC.
"The bits of money I used to be able to save, I can’t save now because I’m spending it on food."
Watch what Faye, and local businessman David Shuttleworth, have to say below: