The mini-budget: what is the latest and what does it mean for employers

On 17 October 2022, Jeremy Hunt announced that all of the mini-budget measures originally announced by Kwasi Kwarteng in September 2022 would be reversed with the exception of the two which have already started the parliamentary process.

We have set out below an at a glance summary of the impact of Jeremy Hunt's revision of the mini-budget.

The removal of the 1.25% national insurance increase (which workers and employers have paid since April 2022) with effect from 6 November 2022.

The removal of stamp duty on the first £250,000 of a property’s value (and on the first £425,000 for first-time buyers). This came into effect from 17 October 2022.

The tightening of the rules around universal credit, requiring more people to take steps to seek more work and reducing benefits if people do not fulfil commitments to job search.

The rules which limit banker’s bonuses to twice their fixed salary.

The off-payroll (IR35) legislation will remain in place (instead of being scrapped). Medium/large employers who contract with freelancers via a private service company will still need to undertake a complicated exercise to determine employment status and comply with notification requirements about that determined status before work is commenced (and apply tax and NI deductions via PAYE where it has been determined that the engagement is one of deemed employment).

The 1p cut in the basic rate of income tax (taking it to 19p) is scrapped. The basic rate of income tax will remain at 20%.

The removal of the 45% top rate for those earning over £150,000 will remain in place (instead of being scrapped). This change had previously been announced by Kwasi Kwarteng.

The energy cap for consumers will no longer be in place for 2 years, it will remain in place until April 2023 only. It is not yet clear what will happen in April 2023 as details are to be considered an announced.

Corporation tax will increase to 25% in April 2023 (instead of being maintained at 19%).

The increase to tax paid on shareholders’ dividend will no longer be cut, but will remain at the current rates in 2022/2023.

VAT-free shopping for non-UK visitors will no longer be introduced.

Alcohol duty will no longer be frozen. Increases will be implemented in February 2023.

What will this all mean for your employees?

The impact of these changes will vary a lot for your employees depending on what they earn.

There is no real let up in the concern that many employees (save for those who are highly paid) will feel about whether their pay will cover their basic needs.

Overall, analysis by the Resolution Foundation suggests that, for a typical household, all these policies - taken together - will mean tax cuts of £290, rather than £500, driven by the scrapping of the rise in National Insurance.

In particular, the following will carry real concern for employees who are already finding that their income is not covering their basic requirements (or is rapidly approaching that point):

  • The fact there will be no cut in the basic rate of income tax (and that the additional rate will remain in place) means employees will not get any savings in tax.
  • Employees will once again be particularly concerned about how they will meet increased energy costs. Ongoing support is yet to be determined and communicated, but the indication is that further support will be more targeted at those most in need. The lack of clarity on this though, combined with general cost of living pressures, is likely to make employees extremely concerned about whether their income can cover their requirements.
  • The increase in mortgage rates that followed Kwasi Kwarteng's mini-budget are unlikely to drop lower very quickly, raising the pressure on those who own a mortgaged home.
  • It remains unclear what rise will apply to those who are on universal credit (and similar benefits). Many who are on universal credit are working but are economically vulnerable and will be feeling the effects of the cost of living squeeze the most.

We have seen many employers consider measures to assist employees with cost of living squeezes including:

  • Giving a one-off cost of living payment.
  • Giving supermarket vouchers to employees.
  • Providing meals to employees.
  • Providing access to independent financial advice for employees.

You do need to consider whether any one-off payments might have negative impacts for employees who are in receipt of universal credit and/or other benefits.

To find out more, or discuss what you would like to implement to help your employees, get in touch with the team below.