The new chancellor’s “mini-Budget” in September provoked strong reaction from the markets, his own party, and even the International Monetary Fund (IMF).
Some unexpected announcements resulted in market turbulence, emergency intervention from the Bank of England, and even the end of Kwasi Kwarteng’s brief tenure as chancellor of the Exchequer.
While the fallout from the speech may have been more dramatic than expected, some specific announcements will likely affect your finances. So, read on for what the last few weeks will mean for you.
Good news for business owners
Firstly, if you own or run a business, there were two positive pieces of news.
A new Energy Bill Relief Scheme will provide support for non-domestic customers (businesses, voluntary sector organisations, such as charities, and public sector organisations such as schools, hospitals, and care homes) with discounts applied to energy usage initially between 1 October 2022 and 31 March 2023.
Essentially, the government has capped the cost of gas and electricity at £211 per megawatt hour (MWh) for electricity and £75 per MWh for gas.
For comparison, wholesale energy costs in England, Scotland and Wales for this winter are currently expected to be around £600 per MWh for electricity and £180 per MWh for gas.
As a business you don’t need to take action or apply to join the scheme. The government website contains more details, along with some examples of potential cost savings.
Secondly, the chancellor also announced that the government will reverse the 1.25% National Insurance increase, introduced by Rishi Sunak in April 2022. The Health and Social Care Levy, which was to replace the 1.25 percentage point rise in April 2023, has also been scrapped.
The government says that this will reduce tax for 920,000 businesses by nearly £10,000 on average next year.
Both these announcements have survived the U-turns made by the new chancellor, Jeremy Hunt.
However, in more disappointing news, Hunt has reinstated the rise in Corporation Tax set for April 2023. So, depending on how much profit you generate in your business, your tax bill may rise in April.
Two U-turns on personal tax
In his mini-Budget, Kwarteng also announced the unexpected abolition of the 45p additional rate of Income Tax, paid on earnings above £150,000.
Despite the chancellor claiming that “this will simplify the tax system and make Britain more competitive,” he was forced into an embarrassing U-turn a few days later after markets responded negatively to the announcement.
During his speech, the former chancellor also announced that, from April 2023, the basic rate of Income Tax would fall from 20% to 19%.
His successor, however, has reversed this decision, confirming that the basic rate of Income Tax will remain at 20% “indefinitely”.
The end position is that the rates of Income Tax look set to remain exactly as they are now into 2023/24.
Lower Stamp Duty for people moving home
The government believes that cutting Stamp Duty will encourage economic growth by allowing more people to move and enabling more first-time buyers to get on the property ladder.
So, the chancellor announced that, with immediate effect, no Stamp Duty will apply to the first £250,000 of a property purchase.
This will save a second-time buyer £2,500 when they buy a house valued at more than £250,000.
The chancellor also increased the threshold at which first-time buyers will start paying Stamp Duty to £425,000 and increased the value on which they can claim relief from £500,000 to £625,000.
Interest rates are likely to soar – pushing up mortgage and savings rates
The immediate market reaction to the chancellor’s mini-Budget was largely unfavourable. Sky News reports that, at one point, sterling slipped to an all-time low against the dollar of just $1.0327.
While the pound has rallied since, weak sterling makes imports more expensive, which could further push up inflation. In addition, interest rates often rise during periods of currency weakness to attract money into the economy.
The likely result of the low value of the pound is that interest rates will rise sharply. Schroders expect the base rate to rise to 5.25% in the middle of 2023 – more than twice the current level.
That’s bad news if you’re a borrower, but potentially good news if you’re a saver.
You will have seen the headlines that many mortgage lenders immediately withdrew their mortgage deals, with Moneyfacts reporting that almost 1,000 products were removed from the market in the days after the mini-Budget.
The BBC reports that the average rate on two-year fixed mortgage deals jumped to 5.75% on Monday 3 October, up from 4.74% on the day of the mini-Budget.
This means that if you’re looking for a mortgage into 2023, you’ll likely pay a significant amount more than before. If you’re coming off a low-cost, fixed-rate deal you will see your repayments rise sharply.
In theory, savers should also benefit from higher interest rates on cash savings.
As of 19 October, Moneyfacts reports that you can now get a rate of 2.55% on easy access cash savings. While this won’t be enough for your savings to keep up with inflation, it does represent a significant increase on the rates available just a few weeks ago.
Get in touch
During unpredictable times it’s important not to let sensational headlines and negative emotions drive your financial decisions.
Markets are volatile but, over time, they tend towards growth. Selling assets now could simply turn a paper loss into an actual loss, robbing your funds of the chance to increase in value when markets recover.
We understand that it is a worrying time, so if you’d like to have a chat about recent events and their effect on your financial plan, please get in touch. Email email@example.com or call us on 01189 876655.