The last few months of political news in the UK has played out like a pantomime with resignations, scandals, and umpteen twists and turns providing plenty of theatrical drama. You could be forgiven for listening to a government announcement and feeling compelled to yell out “oh yes it is” followed quickly by “oh no it isn’t”.
It would be understandable if you felt a bit lost. It’s not often a country can say it had a different chancellor for each month between July and October.
At last things seem to be settling down and there’s finally a moment to catch your breath and get the lay of the land.
But what — after several chancellors, three prime ministers, a mini-Budget, and multiple reversals — has actually changed?
Read on to learn about the ins and outs of the last few months, what the status quo is currently, and what issues potentially reside down the line.
A revolving door at No. 10 and a mini-Budget
In early July 2022, 62 of the United Kingdom’s 179 government ministers, as well as various other government officials, resigned from their positions in the wake of yet another scandal under Boris Johnson’s administration. Shortly after on 7 July, the prime minister resigned, prompting a Conservative Party leadership election.
After weeks of political wrangling, Liz Truss was elected leader of the Conservative Party and succeeded Johnson as prime minister on 6 September 2022.
On 23 September 2022 Truss’s newly appointed chancellor, Kwasi Kwarteng, announced the government’s Growth Plan, known commonly as the “mini-Budget”, that outlined a series of tax cuts.
Its aim was to drive economic growth, against the backdrop of a year of high inflation and the Bank of England (BoE) reporting that the UK economy had entered a recession.
Paul Johnson, the director of the Institute for Fiscal Studies (IFS) referred to the mini-Budget as “the biggest tax-cutting event since 1972”.
The plan included measures such as:
Changes to Corporation Tax
The government’s previous plans to raise Corporation Tax from 19% to 25% in April 2023 would now be cancelled.
Cutting Income Tax
Plans to cut the basic rate of Income Tax from 20% to 19% would be brought forward to April 2023 and the 45% additional rate of Income Tax would be abolished altogether.
Changes to the Stamp Duty
First, Stamp Duty would no longer apply to the first £250,000 of a property purchase. Second, there would also be an increase in the threshold for which first-time buyers need to start paying the duty to £425,000 and increase in the maximum value of claim relief to £625,000.
Keeping the Annual Investment Allowance at current levels
The Annual Investment Allowance (AIA) would remain at £1 million permanently in the mini-Budget’s plans, rather than returning to £200,000 from March 2023 as previously planned.
Forming new “Investment Zones”
There would be a formation of designated zones in specified areas of the country in which businesses within these areas would benefit from accelerated tax reliefs for structures and buildings, as well as 100% tax relief on qualifying investments in plants and machinery.
These businesses would also pay no Stamp Duty on newly occupied business premises, no business rates on new premises, and no National Insurance on the first £50,000 earned by a new employee.
Scrapping the banker bonus cap
Finally, the mini-Budget planned to scrap the current cap on banker bonuses in a particularly controversial move.
The government’s Growth Plan was supposed to be their landmark piece of policy that would help transform the economy. However, it didn’t go as planned for the Truss regime and further changes soon followed.
A short-lived premiership and a series of U-turns
The mini-Budget caused investors to be spooked by the lack of detail on how these tax cuts would be funded and began to rapidly sell off UK government bonds.
This sent the cost of borrowing for the BoE soaring by over 20%. They began temporarily purchasing bonds in order to try and calm the markets. In doing so, they hoped to protect pension funds from the risk of collapse.
The value of the pound against the dollar plunged nearly 5% to approximately $1.03 to the pound, the lowest level in more than 50 years.
The property market was thrown into disarray after the BoE raised the base rate, for the seventh consecutive time since March 2020, to 2.25% as shown by the graph below:
Source: Bank of England
Mortgage deals were removed from the market and homeowners on variable- or tracker-rate mortgages saw their rates rise significantly leaving them facing an uneasy future.
The BoE has since increased the base rate again to 3% (as of 18 November 2022).
Kwasi Kwarteng was replaced as chancellor by Jeremy Hunt in a move to reassure markets, and he immediately reversed many of the plans outlined in the mini-Budget.
On 25 October 2022, Liz Truss resigned as prime minister, marking the shortest unequivocal term of office in British history at just 50 days.
To date, Hunt has reversed the majority of the mini-Budget with the key areas that remain being changes to National Insurance contributions (NICs), the AIA, and changes to the Stamp Duty.
He is yet to announce his stance on the banker bonus and the new investment zones.
The Energy Price Guarantee was another major piece of legislation for the Truss/Kwarteng administration. They had planned to freeze standing charges and unit rates for households until 2024.
Jeremy Hunt has since brought this forward to April 2023, meaning millions of Britons are once again facing the possibility of rapidly increasing energy bills in the near future.
There have been further changes as a result of the autumn statement announced on 17 November 2022.
Rishi Sunak and the future budget
Rishi Sunak has succeeded Truss as prime minister. He has retained Jeremy Hunt as chancellor and the two of them worked on a new budget, aimed at plugging a £40 billion hole in public finances, which was announced on November 17.
While the future remains a worry for many Britons, it is at least reassuring that the recent turbulence has settled down and this will hopefully mean that any further fiscal events are far calmer.
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This article is no substitute for financial advice and should not be treated as such. To determine the best course of action for your individual circumstances, please contact us.