Nov 17, 2022
UK Chancellor offers business rates relief but hikes taxes
Nov 17, 2022
British finance minister Jeremy Hunt announced a string of tax increases and tighter public spending in a tough budget plan on Thursday that he said was needed after the blow dealt to the country's fiscal reputation by former prime minister Liz Truss.
Hunt told parliament that the economy was already in recession and was forecast to shrink next year but there was no way to avoid painful fiscal medicine to ensure Britain could build on the recent restoration of calm in financial markets.
"Credibility cannot be taken for granted and yesterday’s inflation figures show we must continue a relentless fight to bring it down, including an important commitment to rebuild the public finances," he said.
Hunt announced changes to tax rules that will mean more people pay basic income tax, a lower threshold for paying the top rate of income tax, and a cut in tax-free allowances for earnings from dividends.
THE KEY MEASURES
He also froze the threshold at which employers pay National Insurance contributions until April 2028.
And he will cut the business rates tax on company premises while commencing a revaluation of business properties from April to make sure the tax reflects the value of properties.
The revaluation of properties for business rates is a bid to “soften the blow”. And hunt said two-thirds of properties “won’t pay a penny next year” with thousands of “small high street shops” benefiting from the move.
The business rates multipliers will be frozen in 2023-24, at 49.9p (for small businesses) and 51.2p, preventing these from increasing in line with inflation. The government says this is a tax cut worth £9.3 billion over the next five years and will mean bills are 6% lower than without the freeze.
Upward transitional relief caps will provide support for those facing large bill increases following the revaluation. This £1.6 billion of support will be funded by the Exchequer rather than by limiting bill decreases, as at previous revaluations. The ‘upward caps’ will be 5%, 15% and 30%, respectively, for small, medium, and large properties in 2023-24.
And there will be no downward transition for those businesses whose rateable value have decreased following the revaluation. Instead, ratepayers will see reductions to their rate bills immediately.
But consumers will have less cash to spend. The highest-earning Britons will now pay the top 45% rate of tax on income above £125,000, rather than £150,000 previously. The previous administration of Prime Minister Liz Truss had tried to abolish the top rate altogether.
The government will freeze until April 2028 the threshold on the amount people can earn tax-free as well as the level at which the higher rate of income tax kicks in, meaning that with inflation running high, people face paying more income tax.
Hunt said he would cut the amount shareholders can earn in dividends before they begin paying tax from the current level of £2,000 to £1,000 next year and £500 from 2024.
Because electric cars are increasingly common, Hunt said they will no longer be exempt from vehicle taxes from April 2025.
Public spending will grow but more slowly than the economy, he said.
Existing increases planned for departmental budgets will be protected in cash terms until 2024/25, Hunt said - meaning a big real-terms cut with inflation running so high.
Overall spending on public services will continue to rise in real terms for the next five years.
And while many consumers will have less cash, he said he would keep in place the so-called triple lock, which guarantees the state pension will increase by inflation, average earnings or 2.5% - whichever is strongest.
Additional reporting by Sandra Halliday
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