Fiscal Event II: The Hunt Is On

He may have only been in the role for a matter of days, but new Chancellor of the Exchequer, Rt Hon Jeremy Hunt MP, has leapt straight into action to unpick most of the announcements his predecessor made just last month.

Hunt opened his statement by saying that whilst no government can control markets, they can give certainty about public finances. Hunt’s announcements included less reliance on increased borrowing, and the formation of a new economic advisory body. This was a big step away from the “Trussonomics” set out by Kwarteng last month and promised during the Prime Minister's leadership campaign over the summer.

But with so many policies being introduced, repealed or u-turned over the last few weeks, it's important to take stock of where that leaves things.

What has been scrapped?

Today’s statements also included the decision to scrap the changes to IR35. This means the IR35 changes introduced to the public sector in 2017 and then rolled out to the private sector in 2021 will remain in place. This at least grants the industry a degree of stability, having just adapted to the expansion that took place last year. However, this only counts for so much. Now is the time to for government to undertake a full review of IR35, establish the long-awaited Single Enforcement Body and introduce umbrella company regulation.  

Hunt made it clear that a number of proposed tax changes announced by Kwarteng will no longer go ahead. These include the proposed increase to corporation tax from 19% to 25% and the planned reduction of the basic rate of income tax to 19%. Instead, income tax will remain at 20% "indefinitely" while Corporation Tax will remain at 19%. These changes are designed to reduce the need for further government borrowing to fund public spending.

What is still in play?

Having initially been announced as part of Kwasi Kwarteng’s mini-budget, the planned cancellation of the Health & Social Care Levy remains government policy. This will be a boost to payrolls this year and we're pleased this remains in place, after calling on government to reverse the planned National Insurance rise in our Budget submission. As we said then, taxing businesses on activity, rather than profits, was the wrong tax, at the wrong time.

Additionally, the energy price guarantee for domestic users announced in September will remain in place, however, this cap will now only last until April 2023 rather than the 2 years originally planned. The government will be conducting a review into how best to support energy bill payments beyond April. In parallel, the government is consulting with businesses to understand which organisations will be most at risk and may require further support after 31 March 2023 – when the Energy Price Guarantee for business is due to end.

How long these new policies remain in place is yet to be seen, but for now the REC will continue to work hard to get the clarity and guidance needed to ensure our members can continue operating effectively.