UPDATE: 25/10/22: The government has reversed many of these decisions since the mini-budget was announced on 23rd September 2022. We’ve highlighted which policies have been scrapped and which are still going ahead below.
A new Prime Minister. A new budget. A new economic outlook. The recent mini budget included huge changes that could have a big effect on your finances. So, to help you quickly sift through what’s relevant and what’s not, we’ve broken down how the mini budget affects you and – more importantly – your money.
Big changes to income tax
The Chancellor has claimed this budget includes the biggest tax cuts in a generation. So, here’s what’s new.
What’s changing?
- Basic rate income tax will fall from 20% to 19%. Basic rate income tax is paid on annual earnings from £12,571 to £50,270. Reversed
- The 45% highest rate of income tax will be scrapped for England, Wales and Northern Ireland. This was paid on earnings over £150,000. Instead, it will stay at 40% on earnings over £50,271. Reversed
When will it happen?
Income tax changes will come into effect from April 2023.
What does it mean?
The cut to basic rate income tax means that from April next year, anyone earning more than £12,571 a year will have more money in their take-home pay. The government estimates that around 31 million people will gain an extra £170 a year.
If you happen to earn over £150,000, you’ll really benefit from the tax cuts. Roughly 660,000 people will benefit from the scrapping of the 45% tax rate, and it’s estimated that approximately 600,000 of these people will save around £10,000 a year.
Stamp duty cuts
The mini budget included changes to stamp duty which will affect anyone looking to buy a property in England or Northern Ireland.
What’s changing?
- First-time buyers will now pay zero stamp duty on properties worth up to £425,000 – an increase from the previous £250,000. Retained
- For non-first-time buyers, the price at which stamp duty is first paid has risen from £125,000 to £250,000. Retained
- The new stamp duty rates are:
– 0%: £0 – £250,000 (£425,000 for first-time buyers)
– 5%: £250,000 – £925,000
– 10%: £925,000 – £1,500,000
– 12%: £1,500,000+
When will it happen?
These changes came into effect immediately, so you can benefit from them now if you’re in the market for a new home.
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What does it mean?
If you’re hoping to buy a property in the future, these changes will make it slightly cheaper. Since stamp duty is a cost outside of what your mortgage covers, you need to raise these funds on top of your deposit. Therefore, a reduction in stamp duty should make the housing market more accessible to more people – particularly in expensive areas such as London.
Reversal of the National Insurance rise
Since April 2022, employers and workers have paid an extra 1.25p in the pound in National Insurance.
What’s changed?
- The recent National Insurance increase will be reversed. Retained
When will it happen?
National Insurance rates will go back to what they were in the previous tax year from 6th November 2022.
What does it mean?
The National Insurance reduction will mean that most workers will receive more money in their November paycheck. In fact, the government have said that the National Insurance reversal will save nearly 28 million people £330 per year.
With National Insurance, the more you earn, the more you pay. So, with this cut, the more you earn, the more you’ll benefit from the tax reduction.
Tightening rules around Universal Credit
Universal Credit is a single benefit payment for people who are of a working age. Over 5.8 million people claim Universal Credit in England, Scotland and Wales.
What’s changed?
- Rules around Universal Credit are being tightened, reducing people’s benefits if they don’t carry out job search requirements.
- Those over 50 and looking for work will be given coaching to help them re-enter employment.
When will it happen?
Claimants who are working 15 hours a week or less will be asked to seek more work from January 2023.
What does it mean?
If you currently work part-time and are claiming Universal Credit, you will be encouraged to seek out more work or face cuts to your benefits. Around 120,000 people on Universal Credit will be affected by this policy change, however those with long-term sickness or a disability will be exempt.
Not sure if you’re entitled to Universal Credit? Read our guide, 5 annual benefits you could be missing out on.
Freeze on energy bills
Energy bills were due to rise to £3,549 from 1st October 2022, however the government has introduced an energy price guarantee to reduce this.
What’s changed?
- The government has introduced an energy price guarantee, reducing energy prices to £2,500 for a typical household from October 2022 for two years. Retained but duration cut
- This is available in England, Scotland and Wales, and the same level of support will be available in Northern Ireland.
- Anyone not using mains electricity and gas will receive an extra £100 on top of their £400 discount.
When will it happen?
The energy price guarantee will be introduced from October 2022 and last for two years. This will now only last for one year and will end in April 2023.
What does it mean?
A key point to note about this policy is this isn’t a limit to how much you’ll pay for your energy bills, but a reduction in the cost of gas and electricity per unit. This means that your bill will still depend on how much energy you use, however it should cost you a bit less than it would have done before the energy price guarantee.
Think you now know how the mini budget affects you? Although top earners have benefited most from the mini budget, most of workers should receive more in their pay packets over the next few months.
