Kwasi Kwarteng delivered his mini-budget as UK Chancellor on Friday and provided a broad range of support for the UK economy including tax cuts, schemes to support business investment, and measures to support household bills.
The Chancellor announced the biggest tax cuts in a generation and will reduce the tax paid by almost all UK tax payers and businesses.
The measures are a gamble future taxes will be supported by increased activity, while the government coffers take a battering in the coming years.
The markets nervousness around this strategy was demonstrated in UK 10-year Bond yields jumping as investor dumped UK bonds. The pound also sank to new lows against the dollar.
Although the UK governments decision to cut taxes will put pressure on the UK’s finances, investors will be aware of the numerous benefits for UK businesses in the short-term.
Mini Budget certainly had some good news for business. Corporation tax staying at 19%, extending SEIS/EIS/VCT investment schemes, IR35 simplified, VAT free shopping for international visitors, no increase in alcohol duty and support for smaller brewers
— Piers Linney (@pierslinney) September 23, 2022
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Housebuilders and Stamp Duty
The Chancellor provided a massive incentive for first time buyers to enter the market by raising the Stamp Duty threshold £300,000 to £425,000. For all other purchases the threshold is increased from £125,000 to £250,000.
“The horrendous cost of buying a house just got cheaper – at least for now. The stamp duty cut will ease some of the pressure on buyers right now. It’s particularly welcome as house prices rocket and interest rates continue to climb. But in the medium-term, it risks making life even harder,” said Sarah Coles, senior personal finance analyst, Hargreaves Lansdown.
Any measures to help stimulate the UK housing market will of course benefit the UK’s housebuilders. Taylor Wimpey, Persimmon, Barratt Developments and Berkeley Group all outperformed the heavily beaten down FTSE 100 on Friday.
Private and Early Stage Growth Companies
The Chancellor has set out his determination to support innovation and early stage enterprises. One of the measures Kwarteng took was to extend the Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS) beyond 2025.
These schemes are a vital part of spurring investment into exciting early stage companies by offering private investors generous tax benefits such as income tax relief, and exemption from capital gains tax and inheritance tax.
“The new Chancellor’s overt commitment to the Enterprise Investment Scheme and Seed Enterprise Investment Scheme could well be the single most important decision he takes during his time at 11 Downing Street,” said Andrew Aldridge, Partner at Deepbridge Capital.
“These world-class propositions are fundamental to the creation of the innovative companies of tomorrow. Particularly within our specialist sectors of disruptive technology and life sciences, EIS and SEIS are key in ensuring the UK is globally recognised as one of the best places to start and scale business.”
Energy Companies
Although there were no direct measures to support energy companies, the move to support households with a £60bn package over the next six months confirms the government will finance the reduction in energy bills themselves, as opposed to levying a windfall tax on energy companies.
Hospitality loses out
As with all budgets, the measures supported the economy unevenly and while some sectors will reap the benefits, some sectors will be disappointed.
This mini-budget will do little to help a hospitality industry hoping for a VAT cut to help support them as energy bills soar.
The VAT cut is what businesses, particularly in the hospitality industry, had been crying out for to help see them through the energy and cost-of-living crises,” said Susannah Streeter, senior investment and markets analyst, Hargreaves Lansdown.
“But there was no help coming from this direction, instead pubs bars and restaurants had to make to promises that corporation tax and alcohol duty won’t rise instead. Whitbread, the owner of Premier Inn, J D Wetherspoon and The Restaurant Group have fallen back amid the disappointment that more targeted support was not available.”