On the 23rd of September, the new chancellor Kwasi Kwarteng in his ‘mini budget’ announced what he has said is the largest cut of taxes in a generation. This is thanks to the soaring cost of living, but what does this huge economic shake up mean? 

This budget is anything but simple to understand so here’s an at-a-glance version to try and outline what went on in the Commons last week to bring about this new plan.  

Many of the cuts that went ahead on Friday are related to the amount of tax people pay due to the amount of money they earn, called income tax. The basic rate of income tax will be cut to 19%, and thanks to this, the government thinks that this will give an extra £170 a year more to 31 million people. The 45% higher rate of income tax will be dropped to a singe higher rate of 40%. 

The recent rise in National Insurance (NI) will be reversed from 6 November. The previously proposed new health and social care levy to help the NHS will not be introduced, this is a move that has been described as reckless by many political spectators. But what is national insurance? NI is a tax paid by people who are employed, their employers and those that are self employed. The NI tax puts money towards the cost of benefits and state pensions. The government can also borrow from NI to help fund other projects. NI really does work to raise money, last year £158bn, say the stats from His Majesty’s Revenue and Customs (HMRC). Whether someone receives a full state pension also depends on your NI record. 

The chancellor is also cutting the UK-wide rise in corporation tax. The tax businesses pay on the amount of money they make. This tax was due to rise from 19%-25% in April 2023. The tax would have included the energy companies which made billions more in profits in the last quarter than they have done for many years. 

Also, rules concerning universal credit have been tightened, which includes reducing benefits if people fail to fulfil job search promises. Due to this move 120,000 more people who are on universal credit have now been asked to take steps to seek more work. If they don’t they face having their essential benefits reduced. 

Even more cuts are to take place with rules known as IR35- which control off-payroll working. These will be simplified and the amount that companies can invest into things tax free will now stay at 1 million pounds indefinitely.  More rules will change to mean that pension funds can now increase UK investments. And new companies are able to raise up to £250,000 in a new plan which is said to take the pressure of taxes off investors. After this new shake up, the options to buy shares for employees has been doubled to £60,000. 

Stamp duty is a tax that people pay when they buy a property in England and Northern Ireland. As per the trend in Kwarteng’s budget there will be yet another cut here, although this one is either a great help or absolutely no help at all. There will now be no stamp duty on properties that cost up to £250,000 and for people who are buying property for the first time this cut rises to £425,000. This now means that people will have a reduction in the amount of money they have to spend on a property. However, this is only going to benefit buyers of properties where the value of property is high, for example in cities or towns. Buyers in London could see no stamp duty on properties where the stamp duty would have once been much higher. But say for example you are looking to purchase property in a rural area such as Northumberland. Many properties would have had no stamp duty on them anyway so the buyer is saving no money at all. This is one of the cuts where the chancellor has been accused of helping the rich get richer and leaving people outside of rich areas without aid.

The issue that has for months now had the most amount of hype is the soaring energy bills.  This is partly due to the invasion of Ukraine by Russia which meant that the west imposed many sanctions to Ukraine’s invader. This has in turn caused Russia to increase gas prices to Europe which relies heavily, some analysts say too heavily, on Russian gas. The huge increase in bills is also due to inflation which is extremely high meaning that prices for almost everything are skyrocketing, especially gas and electricity. Kwarteng announced a freeze on the energy bills cap at £2500, which is still up over £1000 from this time last year. According to the government, this will reduce inflation by 5 percentage points. However, to freeze the energy bills, it requires a huge amount of money, around £60 billion for the six months from October alone. 

As well as all of these other cuts there have been lifting of rules which limit the amount of extra money employees of the banking industry can receive known as bankers’ bonuses. This now means they can receive more money than ever before, adding onto an already above UK average salary. There will now be a package of regulatory reforms which will be revealed further on into the autumn. 

As food prices also head on a worrying upwards trend the government now says that there will be VAT-free shopping for visitors from other countries and the planned increases on duty on beer, wine, cider and spirits has been cancelled. 

The government is also discussing creating investment zones in 38 areas in England. In these zones there will now be more liberal planning rules so that land can be sold for new housing as well as commercial use. No business rates will be charged in these zones as well as stamp duty being totally cut out. Thanks to Brexit, EU regulations and environmental assessments will be cut to try and speed up building, which has angered climate campaigners. 

The new chancellor’s budget was anything but mini and has been described as reckless, earning Kwarteng the name ‘Kami Kwazi’. However the government, which at the time of these measures being set out had been in power for less than a month and had had a huge setback in announcing this plan because of the death of Queen Elizabeth II, didn’t declare it as budget but as a ‘Fiscal event’ because otherwise it would have had to have been analysed and every detail in it scrutinised by top economists. Thanks to this not happening, it made it much easier for the government to carry this out. The plans could be viewed as undemocratic and it’s a worrying sign of what the next two years under the fourth Tory prime minister in 12 years may be like.