Fiscal event rescheduled as Truss and Kwarteng respond to evolving economic climate
The government has announced that its full debt cutting plan will be presented on the 31st October, brought forward from November as the Chancellor, Kwasi Kwarteng, looks to stabilise the turbulent financial markets.
The move may be seen in some quarters as an admission that certain policies announced in late September at the mini-budget (referred to as the Growth Plan) were unpopular with the public and responsible for the recent economic turbulence.
In the week following the announcement of the Growth Plan in Parliament, the pound fell to a 37-year low against the dollar, interest rates spiked, and mortgage providers withdrew their products. The Bank of England has since intervened to stabilise the markets through the buying of government bonds.
The Institute for Fiscal Studies (IFS) has said that the Growth Plan in its current format would lead to a £60bn shortfall in government finances that would need to be accounted for by the 2026/27 tax year, either through higher taxes or reduced public spending.
What to expect with the debt cutting plan
The government responded to the backlash by shelving its plans to abolish the additional rate of income tax – 45% on earnings over £150,000 – on the 3rd October. You can read more about this here.
On 31st October, it is rumoured that the government may also abandon the removal of the cap on banker bonuses, which faced equal criticism from the public and opposition MPs for disproportionately benefiting high earners.
Accordingly, there have been calls on the government to reassess its approach and to offer greater support to lower earners – many of whom are seeking additional work to supplement their income in the face of rising costs across the board.
Julia Kermode, founder of IWORK – the body that champions temps and self-employed workers – said that the government “must do more to protect lower-earning, self-employed workers, along with those who have had no choice but to take on second jobs just to make ends meet”.
“People are struggling with sky-high inflation and rapidly rising bills, not to mention unaffordable mortgage payments, which has led to a rise in second jobbers. Introducing a tax break for these workers would go a long way to help these families at this critical time”, Kermode concluded.
No changes expected on IR35
While elements of the Growth Plan were criticised, others were seen as positive developments – particularly for the UK’s contracting workforce.
The most important announcement for contractors was the repeal of IR35 reform in the public and private sectors, effective 6th April 2023. From this date, contractors will once again be responsible for determining IR35 status and compliance, rather than the end-client – an arrangement that led to “unnecessary complexity for contractors and businesses”, according to IPSE’s Andy Chamberlain.
There has been no indication that government plans to revisit this element of the Growth Plan.
Other policies announced during the Growth Plan that were seen as positive for business were the freezing of Corporation Tax at 19%, reversing the planned increase set to take effect in April 2023, which would have seen it rise to 25% next April. Kwarteng also reversed the increase to National Insurance announced at the Spring Budget by Rishi Sunak.
A full round-up of how the mini-Budget affects contractors can be found here.