Following the widespread criticism of Kwasi Kwarteng’s mini-Budget, incoming Chancellor Jeremy Hunt has reversed a number of tax reforms and scaled back energy support, with further measures set to be published at the end of the month. Upcoming decisions on spending – described by Hunt as ‘eye-watering’ – are arguably more likely to define this Government, with cuts either to the NHS, defence, education or welfare looking increasingly likely.

The instability of the last few weeks, however – which saw U-turns into 360’s and new measures scaled back – is likely to have affected your personal finances for the coming years. From a tax perspective, between income tax, NIC’s and stamp duty, there are a number of moving parts to Hunt’s Budget, leaving many dizzyingly trying to calculate their tax bill.

Our tax team have identified the key announcements from this latest Budget, and outlined their influence on UK taxpayer’s bill for the coming months and years.

What has happened:

Kwasi Kwarteng’s decision to cut income tax, from 20% to 19%, has been reversed. Meanwhile, Kwasi Kwarteng’s decision to reverse the previous Government’s 1.25% National Insurance rise will remain in place.

What the Government say:

On income tax, Jeremy Hunt says: “I have decided that the basic rate of income tax will remain at 20% – and it will do so indefinitely, until economic circumstances allow for it to be cut.”

On NIC’s, Kwasi Kwarteng said: “the reversal of the Levy will help businesses grow, whilst also allowing the British public to keep more of what they earn.”

What this means for your personal finances:

Put simply, the Government’s reversal of income tax cuts, from 19% back up to 20%, will leave UK taxpayers less well off. However, the influence of this reversal is most apparent when seen in context, together with the 1.25% rise of National Insurance. The below chart shows, across tax brackets, the combined effect of these two measures:

As demonstrated above, if the cut to income tax, as initially planned, had come into place in April 2023, UK taxpayers earning £30,000 would have saved £174 in their tax bill for the following year. Following Jeremy Hunt’s reversal of this measure, this will no longer be the case. However, taxpayers will still benefit from Kwarteng’s scrapping of the 1.25% NIC rise, amounting to a saving of £218 for those in this bracket.

So, following changes to both income tax and National Insurance, households in the UK will emerge from this period with an improved tax bill, albeit, not to the extent initially forecast in Kwarteng’s mini-Budget.

What has happened:

Jeremy Hunt has scaled back on Kwasi Kwarteng’s measures to mitigate rising inflation and energy costs, known as the Energy Price Guarantee. The measures will continue as planned until April, at which point a ‘Treasury-led review’ will take place.

What the Government say:

On the Energy Price Guarantee, Jeremy Hunt says: “The review’s objective is to design a new approach that will cost the taxpayer significantly less than planned whilst ensuring enough support for those in need.”

What this means for your personal finances:

Based on the limited information we have so far, our view is that changes may have implications for those on fixed tariffs. The £400 energy grants, as well as other support under the Energy Price Guarantee, will remain in place until April. Beyond that, the ‘Treasury-led review’ would be wise to find solutions for people up to “middle incomes”, as energy bills for a typical household could rise to £4,350 a year once the Guarantee ends.

Until April 2023 though, people in the UK will save on their energy bills. The Government’s energy price guarantee was introduced to replace Ofgem’s price cap. Under the guarantee, energy bills are far cheaper than they would’ve been this winter.

Disclaimer: Please be advised that this is just an overview of some of the new measures. As always, we would urge you to seek appropriate advice before making any changes to your finances. Everyone’s circumstances are different and, therefore, what works for one may not work for another. Our team has extensive knowledge in these matters, so please do get in touch for further information on tax planning and how to manage your wealth efficiently.