Kwarteng sacked as Chancellor, replaced by Jeremy Hunt.
Jeremy Hunt has been named as Chancellor, replacing Kwasi Kwarteng who has been sacked by the PM after five weeks in the job
The former health minister under former Prime Minister Boris Johnson, Jeremy Hunt is understood to be taking over the most senior role in the government.
In his resignation letter to Liz Truss, Kwarteng wrote: ‘When you asked me to serve as your Chancellor I did so in full knowledge that the situation we faced was incredibly difficult, with rising global interest rates and energy prices. However, your vision of optimism, growth and change was right.
‘As I have said many times in the past weeks, following the status quo was simply not an option. For too long this country has been dogged by low growth rates and high taxation – that must still change if this country is to succeed.’
He added that it was important to continue to commit to the growth plan set out on 23 September and said ‘the medium term fiscal plan is crucial to this end’.
In addition, Chris Philp, chief secretary to the Treasury has been moved to the Cabinet Office. Both have only been in post since 5 September.
Philp has been replaced by Edward Argar with immediate effect. He was previously paymaster general and minister for the Cabinet Office from 6 September 2022 to 14 October 2022.
Under Johnson’s government he was minister of state at the Department of Health and Social Care between 10 September 2019 and 6 July 2022. He was elected as Conservative MP for Charnwood in 2015.
Within weeks of being appointed, Kwarteng set out a raft of tax changes in the mini Budget on 23 September, which were not costed and led to financial stability as the City opposed the measures. At the time, he cancelled the rise in corporation tax from 19% to 25%, as well as cutting the higher rate of tax to 40p, which was quickly reversed, and knocking 1p off the base rate to 19% from April 2023.
Susannah Streeter, senior investment and markets analyst, Hargreaves Lansdown said: ‘Parachuting Jeremy Hunt into number 11, who was a key supporter of her rival for the leadership, Rishi Sunak, shows how desperate the Prime Minister is to build bridges with the wider Conservative Party.
‘It shows a growing awareness that concentrating group-think in a small cabal of fervent fans might have been partly to blame for the political and economic debacle the government has experienced.
‘Jeremy Hunt also campaigned against Brexit so there will be hopes the new Chancellor will adopt a more reconciliatory approach towards the EU when it comes to any cabinet discussions on the direction of travel for trade talks.’
- Published in Uncategorized
UK councils face £7.3bn black hole
One in six English councils could run out of money as early as next year with a lack of investment in finance, procurement and digital transformation
According to data from Grant Thornton’s Financial Foresight tool, councils face a £7.3bn black hole by 2025/26, an increase of £4.6bn since the beginning of this year.
Following the cost of living crisis, including the war in Ukraine and a global pandemic, the financial sustainability of local public services continue to erode.
Without additional income, councils will need to save over £125 per head of population by 2025/26.
This is more than the combined average spending per head on areas such as homelessness, sports and leisure facilities, parks and open spaces, alongside libraries, waste collection and disposal, and recycling (£121.19).
Philip Woolley, head of public services consulting, Grant Thornton UK LLP, said: ‘Local government has faced unprecedented demands and pressures over the last decade and without action from both central government and councils, in the face of these inflationary pressures, the list of authorities in need of exceptional support looks set to grow quickly.
‘The additional Covid-19 funding – while critical to support immediate challenges – has not addressed underlying systematic issues or the precariousness of councils’ financial sustainability in the face of economic instability.
‘Local authorities are also now facing the risk of interest rate rises increasing debt financing costs and the real risk of reduced funding from central government, in response to the current economic turmoil facing the country.’
Through a decade of budget pressures and changing policy demands, much-needed innovation has not been adopted across councils.
In addition, the lack of investment in support functions such as finance, procurement and digital transformation has diminished the local government’s ability to tackle the challenges of the next few years.
While English councils have seen small increases in total reserves following government support during the pandemic, from £24.7bn in April 2020 to £30bn in March 2021, this increase is more likely the result of suppressed demand in areas such as social care, caused by lockdowns.
This latest forecast suggests that the increase in reserves will not offer a significant enough financial buffer to stop financial failure at councils.
Woolley added: ‘We see four key steps to meeting this challenge: clarifying roles and responsibilities of councils, a requirement to develop a financial stability plan that is government backed and locally owned, strengthening local governance and, critically, resolving the long-awaited fair funding review for local government.
‘Without committed intervention from all sides, there is a risk that the sector levels down instead of up.’
The forecast tool has been modelled using a range of evidence-based assumptions including the ongoing impacts of Covid-19 and inflation.
- Published in Uncategorized
Fraud warning for self-assessment taxpayers
Self assessment taxpayers should guard against being targeted by fraudsters as more than 10,000 websites attempt to defraud individuals, warns HMRC
In the 12 months to August 2022, HMRC responded to more than 180,000 referrals of suspicious contact from the public, of which almost 81,000 were scams offering fake tax rebates.
They have also responded to 55,386 reports of phone scams in total, 87% down on the previous year. In April 2020 HMRC received reports of only 425 phone scams. In August 2022 this was 5,913, while it received reports of 10,565 malicious web pages for takedown.
Criminals claiming to be from HMRC have targeted individuals by email, text and phone with their communications ranging from offering bogus tax rebates to threatening arrest for tax evasion. Contacts like these should sound alarm bells – HMRC would never call threatening arrest.
Anyone contacted by someone claiming to be from HMRC in a way that arouses suspicion is advised to check the scams advice on gov.uk.
Taxpayers can report any suspicious activity to HMRC by forwarding suspicious texts claiming to be from HMRC to 60599 and emails to phishing@hmrc.gov.uk. Any tax scam phone calls can be reported to HMRC using the online form on gov.uk.
Myrtle Lloyd, HMRC’s director general for customer services, said: ‘Never let yourself be rushed. If someone contacts you saying they’re from HMRC, wanting you to urgently transfer money or give personal information, be on your guard.
‘HMRC will never ring up threatening arrest. Only criminals do that.
‘Tax scams come in many forms. Some threaten immediate arrest for tax evasion, others offer a rebate. Contacts like these should set alarm bells ringing, so take your time and check ‘HMRC scams advice’ on gov.uk.’
Fraudsters target taxpayers when they know they are more likely to be in contact with HMRC, which is why anyone completing self assessment tax returns should be extra vigilant to this activity. There is a risk they could be taken in by scam texts, emails or calls either offering a ‘refund’ or demanding unpaid tax, thinking that they are genuine HMRC communications referring to their self assessment return.
HMRC warned that some taxpayers who have not done a self assessment return before might be tricked into clicking on links in these emails or texts and revealing personal or financial information to criminals.
The deadline for filing paper tax returns for the 2021-22 tax year is 31 October 2022, and 31 January 2023 for those filing their tax return online. Taxpayers who file their return online via gov.uk should not share their HMRC login details. Someone using the details could steal from the taxpayer or make a fraudulent claim in their name.
HMRC is actively tackling the scams and fraudsters who attempt to mimic genuine HMRC activity and messages. The department’s dedicated customer protection team works continuously to identify and close down scams.
HMRC also tackles misleading websites designed to make people pay for services that should be free or low cost, charging to connect people to free HMRC phone helplines. To protect the public, HMRC formally disputes and takes ownership of HMRC-branded internet domain or website names. Since 2017, the department has recovered more than 183 websites hosting low-value services such as call-connection sites, saving the public millions of pounds.
Over the last year the tax authority has also worked with the telecoms industry and Ofcom to remove 48 phone numbers being used to commit HMRC-related phone scams.
- Published in Self Assessment
Unemployment rate falls to 3.5%
The UK unemployment rate has fallen to its lowest level in nearly 50 years, according to the Office for National Statistics
Unemployment rates fell to 3.5% for June to August, the lowest recorded rate since early 1974. In the quarter, the number of unemployed people per vacancy fell to a record low of 0.9%.
Growth in average total pay (including bonuses) stood at 6%, and regular pay was 5.4% among employees from June to August 2022. This was the strongest growth in regular pay seen outside of the covid-19 pandemic period, the ONS said.
However, in real terms the value of regular pay fell by 2.9%, the steepest fall since comparable records began in 2001.
Economic inactivity jumped to 21.7%, an increase of 0.6% from the previous quarter. This was driven largely by students aged 16-24, and those suffering from long-term sickness, aged 50 to 64 years.
From July to September 2022, the estimated number of vacancies fell by 46,000 in the quarter to 1,246,000 – the largest fall in the quarter since 2020.
Louise Murphy, an economist at Resolution Foundation, said: ‘A tight labour market is delivering stronger pay growth and reducing unemployment to a near 50-year low.
‘High inactivity and strengthening pay growth present huge challenges for monetary and fiscal policymakers as they seek to cool inflation, boost growth and put the public finances on a sustainable footing.’
The UK employment rate stood at 75.5%, 0.3% lower than the previous quarter, which had a notably higher employment rate than other periods. The number of employees decreased in the quarter, while self-employed workers increased.
Martin McTague, national chair, FSB, said: ‘It’s concerning to see that the number of those economically inactive due to long-term sickness is at a record-high – this is a stark reminder that more needs to be done to support people with long-term sickness into employment, which is crucial to our economic growth.
‘Despite the number of job vacancies falling, we’re still seeing an extremely tight labour market with over 1.2 million unfilled jobs across the country.’
Due to economic uncertainty, and rising interest rates and inflation, McTague added that these factors continue to limit small business’ ability to grow.
‘What small firms need now is a holistic approach to skills and training. Maintaining Skills Bootcamps in the long term and enabling small businesses to automate processes by continuing to ensure that R&D tax credits can be claimed without needless administrative hurdles should help.’
- Published in Employment
Chancellor U-turns on plans to abandon 45p tax rate
The Chancellor Kwasi Kwarteng has confirmed that the government has U-turned on its plans to scrap the 45p rate of income tax
Kwarteng announced the U-turn on Twitter this morning, saying: ‘We are not proceeding with the abolition of the 45p tax rate. We get it, and we have listened.
‘It is clear that the abolition of the 45p tax rate has become a distraction from our overriding mission to tackle the challenges facing our country.
‘This will allow us to focus on delivering the major parts of our growth package’, including the Energy Price Guarantee, ‘to support households and businesses with their energy bills’.
The plan was announced in the tax-slashing mini-budget last Friday, which included scrapping the 45p tax rate, which would cut tax by 5% to 40% for those earning over £150,000 a year.
However, the plan was criticised as unfair amid the current cost-of-living crisis, and required a vote before it could be approved.
Several Tory MPs have voiced their criticisms of the plan, including Grant Shapps who warned that the prime minister would likely lose a Commons vote on the proposal.
Shapps told the BBC: ‘Let’s not muddy the water with tax cuts for wealthy people right now, when the priority needs to be on everyday households.’
The news follows as the tax cuts in the mini-budget was criticised by the International Monetary Fund (IMF) on Friday, which warned it would stoke ‘inequality’ and risked increasing interest rates, as well as benefitting high income earners.
The Bank of England also reacted with a £65bn emergency intervention in temporary and targeted purchases in the gilt market to restore ‘orderely market conditions’ and prevent a ‘material risk’ to UK financial stability.
Jamie Morrison, head of tax at accountancy firm HW Fisher, said: ‘It was a bold move by the Chancellor to cut the top rate of income tax in his mini-budget – and one that has not paid off.
‘Tackling the UK’s cost of living crisis should be the government’s top priority, and it was hard to see how the abolition of the 45p tax rate would have benefitted anyone apart from the UK’s highest earners.’
The pound jumped against the dollar in overnight trading on Monday as reports emerged that the government would abandon the decision to axe the 45p tax rate.
Sterling hit $1.125, recovering to levels before the mini budget, but slumped back in early morning trading to $1.119.
Christy Wilson, associate at Katten UK LLP, said: ‘The removal of the 45% income tax rate was not anticipated before the budget. There was discussion that the Chancellor may announce some amendments to the income tax rates, including the higher rate income tax threshold being moved to £80,000 – but the removal of the 45% tax band was unexpected.
‘Even though the government has maintained since the budget that the tax cuts were the correct approach for economic growth, it is not surprising that the government felt compelled to make some amendments to the announced tax cuts given how serious the backlash to the budget has been.
‘The concerning element of this ‘u-turn’ is that only a couple of days ago Liz Truss and the Chancellor maintained that cutting the 45% income tax rate was the right thing to do, but now they have abandoned these plans. This calls into question other tax cuts that were announced – will these be reversed too?’
Paul Johnson, director of the Institute for Fiscal Studies (IFS), added that the decision to scrap the 45% rate on earnings was the ‘smallest part’ of the mini-budget, representing around £2bn of the £45bn in tax cuts.
‘The direct impact of the government’s U-turn on the abolition of the additional 45p rate of income tax is of limited fiscal significance. At a medium-run cost of around £2bn a year, it represented only a small fraction of the Chancellor’s mini-budgest announcements. His £45bn package of tax cuts has now become a £43bn package – a rounding error in the context of the public finances.
‘The Chancellor still has a lot of work to do if he is to display a credible commitment to fiscal sustainability. Unless he also U-turns on some of his other, much larger tax announcements, he will have no option but to consider cuts to public spending: to social security, investment projects, or public services.’
- Published in Uncategorized
Mini Budget 2022: corporation tax frozen at 19%
As trailed, the Chancellor confirmed that the planned 6% rise in corporation tax will not go ahead in April 2023 with rates set at 19%
The current 19% corporation tax rate was confirmed in Kwasi Kwarteng’s statement to the House, which he said means that the UK has the lowest corporation tax rate in the G7.
The measure will reduce projected tax take by £13.5bn in 2023-24, rising to £16.5bn in 2024-25.
The Chancellor said that ‘competitive business taxes are important to growing the economy as they can incentivise investment and enterprise. The government wants to grow the economy by creating the conditions for businesses to thrive, which will create jobs and increase investment in the UK’.
Matthew Hodkin, tax partner at Norton Rose Fulbright, said: ‘The new Chancellor has announced a reversal of the planned increase in corporation tax from 19% to 25%. While this would appear to be a “nothing” announcement – as the 25% rate had not yet come into force – there are likely to be knock-on effects for companies having to deal with the accounting implications of the reversal.
‘Given the timings, companies would have already been making changes to their accounts to prepare for the increase to 25%. Banks will be disappointed (but not surprised) that the bank surcharge has not been reduced.
‘This can have knock-on effects on the level of deferred tax assets and liabilities, which affect companies’ balance sheets and can be of particular concern to banks, insurance companies and other regulated businesses that are required to maintain a certain level of regulatory capital on the balance sheet. It can also affect other liabilities that are tax-variable, such as payments under tax-based finance leases, where the net present value of the impact of changes can be brought through the income statement of the lessee.’
Glenn Collins, head of ACCA said: ‘“The government’s decision to keep corporation tax at 19% will encourage businesses to invest. With the main rate of corporation tax previously set to increase to 25% next April many businesses were becoming more nervous already feeling the strain of a rise in inflation, cost of living and energy prices, putting unnecessary pressure on businesses. Now more than ever businesses are looking at the ease of doing business and where investment opportunities lie.’
- Published in Corporation Tax
Fiscal statement pencilled in for 23 September
The Chancellor Kwasi Kwarteng is likely to present his fiscal statement to MPs on Friday 23 September, although this is not confirmed.
As parliamentary time is hugely limited by the Queen’s funeral and then the party-political conference season, the Chancellor has only a few options to update MPs and the country on a number of pressing issues, from how the energy bill support will be financed and whether the promised reversal of the 1.5% National Insurance contributions (NICs) hike will go ahead.
The energy bill support will kick in from 1 October for households with little detail available as yet about the plans to help business with soaring energy bills. Yesterday there were indications that detailed plans for business will not be available before the beginning of November, although any measures will be backdated to the beginning of October for businesses, important as the support will only last for six months.
It is worth noting that any changes to NICs would not be instant as they would require the third update of the year to HMRC systems and PAYE software. Some experts are indicating that a minimum of two to three months would be required to ensure a smooth transition to the lower rate. It is also not clear whether the NICs reversal will include employer NICs on top of the employee changes.
The autumn should see a full Budget so it gives the Chancellor some leeway as he could limit any announcements next week and hold them for late October or early November, whenever a Budget is scheduled. This would also give the Office for Budget Responsibility the time to produce a full economic forecast, which takes around 10 weeks to produce.
- Published in Budget
UK economic growth slower than expected
The UK economy saw growth of 0.2% in July, following a sharp fall of 0.6% in the previous month, according to the Office for National Statistics (ONS)
The UK economy grew slower than expected in July as worker shortages and inflation weighed heavily on activity amid the growing risk of recession.
According to the ONS, gross domestic product (GDP) rose by 0.2% in July, after a sharp fall of 0.6% in June 2022. Though 1.1% above pre-coronavirus levels, GDP was flat in the three months to July compared with the previous three months.
The services sector was the biggest contributor to growth, seeing a rise of 0.4%, following a 0.5% drop between May and June.
Yael Selfin, chief economist at KPMG UK, said: ‘The feeble 0.2% bounce back in July was driven by weak GDP in June due in part to the loss of working days from the Jubilee long weekend.
‘More concerning, July’s GDP remains below the level seen in May, pointing to an overall contraction over the first two months of summer.
‘This ties into a downbeat outlook for the UK economy which could see another shallow recession from the end of this year, driven by the ongoing squeeze on households’ income and a rising cost burden for businesses
‘While nearly £170bn worth of fiscal measures announced last week may be sufficient to avoid a deeper economic slump, these will be partly offset by tighter Bank of England monetary policy focused on combating the high levels of inflation.’
The figures come amid growing concerns over Britain’s economy as soaring inflation and rising costs weigh heavily on households and businesses. The Bank of England warned that the UK will likely fall into recession at the end of the year, which could last until early 2024.
The information and communication sector grew by 1.5%, the largest contributor to services growth in July. The main driver was computer programming, consultancy, and telecommunications.
Production fell by 0.3% after a fall of 0.9% in June, mainly because of a drop of 3.4% in electricity, gas, steam, and air conditioning supply.
Jake Finney, economist at PwC, said: ‘Looking beneath the headlines, it’s clear this positive growth rate was primarily led by the performance of the services sector. Two of the other main engines of economic growth – production and construction – contracted in July.
‘Despite today’s positive growth figures, our expectation is that the UK economy will contract in the third quarter of 2022, following its 0.1% contraction in the second quarter. This would mean that the UK enters a technical recession for the first time since lockdown restrictions ended.’
- Published in Uncategorized
Liz Truss to be next UK prime minister
Following weeks of hustings and debate, the members of the Conservative party have elected Liz Truss as their party leader and new prime minister
The popular vote was won by home secretary Liz Truss with 57% of the vote with a share of 80,326 votes, while former chancellor Rishi Sunak took 43% at 60,345 votes.
In a short speech before MPs, Truss promised to govern as a Conservative for the next two years, prioritising cutting taxes and dealing with the energy crisis, long term energy supply issues, and National Health Service.
In earlier interviews, Truss said that she would set out her economic plans within the next week to address the energy crisis and cost of living issues.
The official handover will take place at Balmoral when the Queen invites Truss to form the new government following the resignation of Boris Johnson.
The new Cabinet will be confirmed in the next few days with key appointments likely to be confirmed late on Tuesday.
In contrast to her opponent Sunak, Truss has focused on tax cuts as a central plank of her policy.
Simon Rothenberg, a director at Blick Rothenberg, said: ‘Liz Truss has led with the promise of significant tax cuts such as the reversal of Rishi Sunak’s 1.25% National Insurance, likely to be targeted at basic rate taxpayers only.
‘Truss is also said to be favouring a substantial increase to the basic rate threshold, possibly as high as £80,000 – a promise Boris Johnson led with during the 2019 Conservative Party leadership campaign but never materialised during his tenure. These will help, but they are not immediate fixes.
‘I expect a budget in the coming weeks with a lot of promises before this around helping households with energy prices and the cost-of-living crisis – help is urgently needed, and it will be at a very significant cost to HM Treasury.
‘There was little or no promise to help, in the immediate future, the businesses who are being crippled by the complete lack of any energy price cap – tax cuts (including stopping the proposed increase in corporation tax to 25%) and a stronger economy will help tomorrow, but they need help today.
‘Pubs, restaurants, shops, hairdressers, along with all other businesses, are receiving their energy bills which, in some cases, show over a 500% increase over the previous bills. This is before they head into winter and while temperatures are still mild.
‘Without any targeted support I fear our retail and hospitality sector will severely struggle over the winter months as households reduce their discretionary spend to afford their own increased prices.’
The package of tax cuts promised in Truss’ campaign appealed to Conservative voters but will be costly to implement without cutting public services to balance the books.
Adrian Young, a tax partner at Hurst, said: ‘Ultimately, the real challenge the new prime minister will face is to maintain public services while delivering tax cuts. The ones she proposed on the hustings alone have been costed at £30bn in some estimates. It was no doubt easy to make these promises as part of a plan to win the premiership.
‘However, the reality for Truss of managing the public finances in the current economic climate will be much more problematic.’
- Published in Uncategorized
HMRC piles pressure on taxpayers behind on payments
A further increase on interest paid to HMRC for late payment of taxes will hit taxpayers who are not up-to-date, warns Blick Rothenberg
Nimesh Shah, CEO at the firm said: ‘Following another Bank of England base rate to 1.75%, HMRC has confirmed that it will raise its interest rates on late tax bills to 4.25% on 23 August – a level not seen since January 2009.’
He added: ‘Since the start of 2022, the HMRC’s interest rate has increased by 1.5% – that’s the equivalent of an extra £225 per annum on a £15,000 tax liability. On the same £15,000 tax liability, you would suffer almost £650 of interest per annum.
‘With continuing rising costs rising across the board, HMRC have hiked up interest on late tax payments at the latest opportunity. It sets a worrying trend for some taxpayers who are struggling to pay their outstanding taxes, against the backdrop of other rising costs.
The threat of further interest rate rises this autumn, coupled with rising inflation, will likely see further increases in HMRC rates.
Shah said: ‘The worst is yet to come on this front, with some economists projecting the Bank of England could decide to increase the base rate to 2.5% by the end of 2022 – this could see HMRC increasing their interest rate on late paid tax to 5% by the end of the year.
‘Taxpayers who have outstanding tax liabilities should be mindful to settle as much as they can afford before there are further rate rises.
‘HMRC have also finally increased the repayment supplement rate by 0.25% to 0.75% – the first increase in this rate in over a decade. It’s quite shocking that HMRC have quickly increased the rate on late paid tax by six times the amount the equivalent repayment interest rate has gone up by this year.
‘HMRC’s meagre 0.75% repayment supplement rate means there is not any great incentive for HMRC to release repayments. There continues to be one rule for money owed to HMRC and another for taxpayers who are due a refund. Many taxpayers have seen significant delays to repayments over the last 12 months, but HMRC can continue to drag their heels with little cost to the Treasury.’
- Published in HMRC, Interest Rates, Tax return