The mini budget announced last week turned out to be more of a mega budget with a several radical changes announced, but what will it mean for your finances?
The Chancellor Kwasi Kwarteng unveiled a range of measures aimed at boosting economic growth, but only time will tell whether these changes will achieve his goal.
Following the announcement, the value of the pound plummeted. If it fails to recover then inflation could rise further. This in turn could see interest rates go up faster to defend the pound and try to curb inflation. Liz Field, chief executive of PIMFA, said: “If these measures bring growth faster than expected the Government will be praised for putting the economy back on track but given higher borrowing costs and inflation running at its highest level in 40 years, the future remains mired in uncertainty.”
Here, we look at how the mini budget will affect the pound in your pocket, and who stands to benefit the most.
The planned reduction in the basic rate of income tax from 20% to 19% has been brought forward to April next year. At the same time, the top 45% additional rate of income tax will be abolished, so those on the highest salaries will pay a top rate of 40%.
Who benefits? The highest earners will see the biggest benefits from the income tax changes, although lower earners will save a small amount of tax. Alice Guy, Personal Finance Expert, interactive investor, says: “The big news is the Chancellor’s decision to scrap the additional tax rate of 45% giving the top earners a massive pay boost. Someone earning £200,000 will save an eye-popping £2,877 per year.
“Meanwhile, cutting the basic rate to 19% will have less effect and will benefit someone earning £20,000 by only £74 per year. It will go only a little way towards helping with spiralling energy and food costs this winter.”
National Insurance rise reversed
The recent 1.25% increase in National Insurance, introduced by the previous Chancellor Rishi Sunak, will be reversed from 6 November.
Who benefits: All employees earning more than the annual equivalent of £12,570 will benefit from the reversal in the National Insurance rise. However, high earners will benefit the most.
Alice Haine, Personal Finance Analyst at Bestinvest said: “Someone earning £15,000 will receive a monthly boost of just £2.50 to their pay packet – or £30 a year - from November compared to now. A worker earning £20,000 will receive £7.75 extra in their take-home pay or £93 a year and jump to an income of £50,000 and the annual saving of £468 equates to a monthly income boost of £39.
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“Employees on salaries of £100,000 save £1,093 a year or £91.08 a month in NIC with the biggest gains going to those earning more than £150,000 who save £1,718 over a 12-month period - the equivalent £143.16 a month.”
The threshold at which stamp duty becomes payable has been permanently raised from £125,000 to £250,000.
First-time buyers, who could previously had a £300,000 stamp duty threshold which they could use when buying a property costing up to £500,000, now have a higher £425,000 stamp duty threshold. The maximum value of the property on which first-time buyers can claim stamp duty relief has risen to £600,000.
Who benefits? First-time buyers buying properties costing over £300,000 are the big winners from the changes to stamp duty, saving £6,250 in stamp duty if purchasing a home costing £500,000. Other buyers moving up the property ladder will save a maximum of £2,500 in stamp duty when buying a home costing £250,000 or more because of the changes.