The chancellor, Kwasi Kwarteng, has announced a sweeping package of measures in his mini-budget, includinga swathe of tax cuts that will have a huge impact on millions of people’s finances. Here we look at what the main announcements mean for household finances.
The basic rate of income tax is being cut by 1p in the pound from next April – a year earlier than planned – taking it down to 19%.
The Treasury said the £5bn-plus move would “mean 31 million people will be better off by an average of £170 per year” in 2023-24. However, the move benefits those on higher incomes more. On average, basic-rate taxpayers will be £130 better off in 2023-24, while for higher-rate taxpayers the gain is £360, said the Treasury.
The government said this was the first cut to the basic rate of income tax in 15 years (the last time it happened was in 2008-09), and added that 19% was the lowest the basic rate had ever been in the modern income tax system.
Kwarteng’s announcements will be “a shot in the arm” for pensioners, said Hargreaves Lansdown, given that both annuities and drawdown are subject to income tax. The 1% cut may sound small, but it can add up to serious savings, with someone on a £25,000 income paying over £125 less a year, it added.
Kwarteng also announced that the top rate of income tax – the 45% “additional rate” for people earning more than £150,000 – is being abolished altogether with effect from April 2023, replaced by a single higher rate of income tax of 40%.
The current threshold for the higher rate of tax is £50,270 – from April everyone earning over this amount will be taxed at 40% rather than 20%. Scrapping the additional rate will cut tax for around 660,000 individuals.
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