New Chancellor Kwasi Kwarteng has announced the biggest package of tax cuts in 50 years as part of government plans for “a new era focused on growth”.
His announcement includes a major lobbying success for the CLA’s Rural Powerhouse campaign, which has been actively lobbying to retain the Annual Investment Allowance threshold at £1m. The lobbying win comes just weeks after the CLA secured a £110m package of support for rural businesses in England.
Following the chancellor’s ‘mini-budget’, CLA experts have unpicked some of the details in the announcement and what it means for CLA members.
The government’s growth plan introduces a series of changes to the tax regime. These changes are aimed at allowing business to invest and innovate and, through that, deliver greater productivity and growth.
These tax changes include:
Annual investment allowance
The CLA has been calling for the Annual Investment Allowance (AIA) threshold to be retained at £1m beyond 31 March 2023, as frequent changes to the threshold hamper businesses trying to plan investment, particularly where there are long lead-in times.
The AIA was temporarily increased to £1m at the beginning of 2019 for a period of two years. It was then extended to 31 March 2023 in March 2022, and was due to be reduced to £200,000.
We are delighted that the government will make permanent the £1m AIA threshold that applies to investment in plant and machinery, which will make it simpler for businesses to invest. This move brings more certainty for businesses in the financial decisions and investments they make.
The basic rate of income tax will be reduced to 19% from 5 April 2023 - a year earlier than the previously-announced April 2024 date.
The additional rate of 45% on annual income above £150,000 will be abolished from 5 April 2023. This means that all non-savings and non-dividend income above £50,270 will be taxed at 40%.
The planned 1.25% increase in the rates of income tax on dividends in April 2023 has also been abolished. The rates of tax on dividends will be 7.5% for basic rate taxpayers and 32.5% for higher rate taxpayers from 5 April 2023.
The planned increase to the corporation tax rate to 25% from April 2023 is being abolished; the rate will remain at 19%.
National Insurance and Social Care Levy
The government will reverse the 1.25% increase in Class 1 and Class 4 National Insurance contributions (NICs) for the remainder of the 2022-23 tax year for employers, employees and the self-employed. The rate will revert to 13.8% for Class 1 employer contributions, with employees paying 12% and 2% on earnings above the upper earnings limit. This will take effect from 6 November.
Those who are self-employed who pay NICs based on annual earnings in a tax year will pay a main rate of Class 4 NICs of 9.73% and the additional rate of Class 4 NICs of 2.73% for the 2022-23 tax year. This blended rate is designed to ensure consistency and fairness with Class 1 NICs payers who have paid the increased NICs rate since April 2022. The rate change means that if you are self-employed, you will not need to apportion your profits mid-way through the tax year to apply different rates of NICs, which you would have to have done for the 2022-23 tax year before today’s changes.
The introduction of the Health and Social Care Levy planned for April 2023 has been cancelled.
Stamp Duty Land Tax (England only)
The residential nil-rate threshold will increase from £125,000 to £250,000. The rates applicable to property values over £250,000 remain the same. The change in the threshold will result in a saving of £2,500 on purchases with a value of £500,000 and above.
The nil-rate threshold for First Time Buyers’ Relief increases from £300,000 to £425,000 and the maximum amount that an individual can pay while remaining eligible for this relief is increased to £625,000. This means that a first time buyer of a property worth £500,000 would save £6,250. A first time buyer of property worth between £500,000 and £625,000 that previously did not qualify for relief will save up to £27,500.
Both SDLT measures will apply to all purchases that complete on or after 23 September 2022.
The government has announced plans to introduce a series of ‘investment zones’ across the UK to help stimulate and increase economic activity and encourage growth. Businesses in investment zones will benefit from tax incentives, 100% business rate relief for newly-occupied business premises, an enhanced capital allowance and an enhanced structures and buildings allowance. The government also intends to deregulate planning conditions to make development easier in investment zones.
Although more detail about these investment zones will be published later, the levels of interest from mayoral combined authorities and upper tier authorities indicate that these investment zones will be urban-focused. If that is the case, the CLA wants these investment zones to benefit the rural areas within or in close proximity to these zones, and we will urge the government to ensure this is the case.
It is interesting to note that investment zones will be granted 100% business rate relief, which suggests that the government recognises that business rates hinder economic development. Based on our members’ experience, the CLA has long argued that business rates are disproportionate to the income generated by most rural businesses and therefore harm growth. We will build on the measures taken for investment zones to call for reform of business rates across the country.
Planning and housing
The government has announced plans to accelerate the construction of nationally significant infrastructure projects by “liberalising the planning system and streamlining consultation and approval requirements”.
Changes to National Strategic Infrastructure Projects seek to speed up the consenting process. The CLA is concerned about the consequences of such a change. We will campaign to ensure the rights to object, and the property rights of those whose businesses or lives are impacted by these large scale projects (whether nuclear power, roads, railways or long distance cables or pipelines) are not diminished. As part of this, we will continue to lobby the government for a requirement to place a duty of care on acquirers to limit the impact on businesses.
There is no mention of the planning reforms that were outlined in the Levelling Up and Regeneration Bill and whether these will survive, although the government has committed to delivering more houses. Any planning reforms must continue to deliver opportunities for rural employment, business growth and organic delivery of local housing in rural areas to sustain rural communities.
Energy and infrastructure
The growth plan confirms the government’s plans to introduce an Energy Bill Relief Scheme for businesses, which will cap electricity and gas prices. This is welcomed, particularly at a time when rural businesses are experiencing severe financial hardship. However, the scheme is only for six months. The CLA will be seeking an extension of this six-month period to avoid rural businesses facing a cliff edge that could result in many ceasing to trade.
The government will also be amending the Product Security and Telecoms Infrastructure (PSTI) Bill to allow fixed line broadband providers easier access to telegraph poles on private land to speed up digital deployment. While the CLA recognises the importance and priority of digital connectivity, any changes to access arrangements must not be at the expense of the property rights of site providers. The CLA and the NFU already have extensive wayleave arrangements with Openreach and Gigaclear that work well for rural site providers.
Agricultural productivity and investment
There is good news for agricultural productivity in this announcement. The statement includes plans for a rapid review of regulation, innovation and investment that impact farmers and land managers to boost agricultural productivity growth, improve competitiveness and strengthen UK food security. The plans will be published in the autumn, and the CLA expects to be discussing them with Defra soon.
The government has announced plans for regulatory reviews and new legislation to speed up processes to enable growth through housing, infrastructure projects and other investments. This could be good news if it removes some of the barriers, which add unnecessary costs and delays to development, but there is too little detail to assess where the balance will be struck with the continued delivery of net zero commitments, nature improvement and environmental goals.
Helpfully, the announcement recognises the growth potential in green jobs and businesses, with plans for an independent review to be published by the end of 2022 on how to deliver net zero while maximising economic growth and investment.