Early Autumn Fiscal Event 2022

21 September 2022

RSM UK’s predictions ahead of mini-Budget

Liz Truss has taken office as Prime Minister, and Kwasi Kwarteng as Chancellor of the Exchequer, in challenging circumstances necessitating an early ‘fiscal event’, following a leadership contest in which tax measures were a prominent, and bitterly contested, topic for debate. Although the leadership contest suggests it may be clear what they would ideally do regarding tax policy, circumstances have evolved significantly in the two weeks since the new leadership team moved into Downing Street and have already resulted in one major government intervention - the energy bill price cap. Nevertheless, the new administration has a clear tax policy agenda, and will be keen to demonstrate it is taking measures to help with the spiralling cost of living, particularly given the relatively short time until the next general election. On a personal level, Mr Kwarteng will no doubt want his first major statement to the House of Commons as Chancellor to be memorable and include some headline-grabbing policy announcements.


The mini-Budget comes as the economy most likely entered recession in Q3. Admittedly, GDP was dragged down by the extra Bank Holiday for the Queen’s funeral, which doesn’t tell us much about the underlying health of the economy. Soaring inflation means underlying growth is extremely weak, and even though the government has already capped energy prices for households and businesses, many will still be paying two to three times as much for energy as they were last year. This will inevitably result in lower consumer spending and business investment over the next year, depressing economic growth. We suspect that the economy will still be in a recession in Q4 and Q1, although it will be a much smaller recession than without the energy prices cap (we are now expecting a peak-to-trough drop in GDP of around 0.5% vs a 1.5 % drop previously). However, even if the UK economy avoids a protracted downturn through the winter, growth is still likely to be meagre.

The energy price cap means that inflation will peak earlier and at a much lower level (11% in October vs 15% in January). It will also come down much more sharply next year, being back at the Bank of England’s 2% target by the end of 2023, rather than the end of 2024. However, a massive fiscal stimulus and a smaller recession means the labour market will remain tighter, and medium-term inflation will remain higher than it would have otherwise been. That makes it much more likely that the Bank of England will have to raise interest rates to 3.5% or even 4% before next summer.

The weak economic outlook, massive fiscal expansion and higher interest rates mean any headroom the Government had against its fiscal mandates has almost certainly evaporated. The budget deficit, even before any additional tax cuts are announced in the mini-Budget, is likely to be 5.5% GDP this year. This will severely limit the new Chancellor’s ability to significantly cut taxes, without cutting expenditure or risking public finances becoming even more unsustainable. To avoid this conundrum, the Chancellor may well claim that cutting taxes will stimulate the economy and therefore boost the overall tax take. And while lower taxes will lead to some increase in growth (beware the siren song of the laffer curve) in reality, tax cuts almost never pay for themselves.


We consider below what we can expect for personal taxation, business taxation, VAT and other taxes. In summary:

  • we can be confident the Chancellor will confirm the reversal of two key policies implemented by his predecessor, Rishi Sunak – the Health and Social Care Levy and the scheduled increase in the main rate of corporation tax from 1 April 2023;
  • we suspect that a planned 1% reduction in the basic rate of income tax will be brought forward and extensions to the basic rate band and personal allowance announced;
  • changes to stamp duty land tax (SDLT) are likely;
  • there is an outside chance we could see cuts to VAT and fuel duty, and details of a new tax relief regime for businesses’ capital investments; and
  • whilst there may be scope to do so, it is unlikely that the previous Chancellor's energy windfall tax will be extended, despite the European Union expecting to raise €140bn via such a tax on unexpected additional profits earned by energy companies in 2022.

One thing that’s clear is the fiscal event taking place later this week is something less than a full Budget Statement. This means the Office of Budget Responsibility is not expected to provide independent commentary on the measures announced, and also that the volume of announcements in relation to tax measures is expected to be considerably lower than for a full Budget. We expect changes to the headlines – rates, bands and allowances – rather than reforms to the overall regime of taxation that would require significant amounts of new legislation. More detailed proposals, and a full draft of the Bill that will become the Finance Act 2023, are likely to be announced later in the financial year.

Personal taxation

National Insurance contributions (NICs)/Health and Social Care Levy

During her leadership campaign, the new Prime Minister promised that, under her premiership, the 1.25% increase in NICs introduced by Mr Sunak, and scheduled to become a ringfenced Health and Social Care Levy from 6 April 2023, would be reversed. She repeated this pledge during her first Prime Minister’s Questions in the House of Commons, so we can be confident that this will be one of the Chancellor’s key announcements later this week. However, there is uncertainty around exactly how far he will go. Will the increase be scrapped for employers as well as employees and the self-employed, and will the associated 1.25% rise in dividend income tax also be reversed?

It is also currently unclear whether the Government has any changes in mind for the annual earnings thresholds that must be exceeded before employees and the self-employed are liable to NICs, which increased from £9,880 to £12,570 in July to mitigate some of the impact of the higher rate. The tone of the pronouncements from the Truss leadership campaign and the new government suggests we can expect all the NICs rate increases to be scrapped, and the thresholds may stay where they are, but it remains to be seen whether any compromises will be required to recoup some of the £18.4bn of government revenue the levy was expected to raise in 2023.

Income tax

The last Budget delivered by Mr Sunak promised that the basic rate of personal income tax would be cut from 20% to 19% from April 2024, a maximum annual saving of slightly under £400 per taxpayer. Some expect Ms Truss and Mr Kwarteng to bring this forward by one year, to demonstrate their tax cutting credentials. However, in light of enhanced ‘fiscal drag’ caused by higher inflation, there is also speculation around the basic rate tax band, with the Prime Minister apparently tempted to dust off an idea floated by Boris Johnson during his leadership campaign in 2019, and raise the income threshold for the higher rate of income tax from £50,270 to £80,000.

Some of the benefit of this measure may be offset for employees and the self-employed by increased NICs if it is accompanied by an increase in the upper earnings limit above which a reduced rate of NICs applies, but the cost to the Exchequer would still be significant. The Government may, therefore, announce an intention to move towards this target by degrees over several years. If implemented in full, the maximum annual tax saving per taxpayer might be in the region of £3,000. There could also be an uplift in the personal allowance, below which no income tax is paid at all, from its current level of £12,570. During her leadership campaign, the Prime Minister discussed allowing the entire personal allowance to be transferred to a spouse or civil partner, which could benefit some couples with unequal incomes. Currently the transferable amount is capped at £1,260, and may only be transferred to basic rate taxpayers. In addition, the Government may wish to review the high-income child benefit charge, which currently sees child benefit clawed back through the tax system where a parent’s earnings exceed £50,000. This threshold may be revised in light of current inflation and any other changes, such as an extension to the basic rate band. The Chancellor will be keen to announce movement on at least some of these issues in his statement, to emphasise the Government’s commitment to lower taxes and supporting households dealing with the increased cost of living.

Stamp duty land tax

The latest tax receipts statistics show that SDLT receipts continue to reach record-breaking levels. In the five months to 31 August 2022, SDLT generated £7.145bn for the Treasury, over £2bn more than the same period last year, and total revenues for the year could comfortably exceed £16bn. It should come as no surprise that the Prime Minister and her Chancellor are reportedly considering significant changes to the SDLT regime. Like other taxes, fiscal drag has resulted in many more individuals paying SDLT at higher rates, so we expect measures to seek to reverse that trend.

It would be a bold and costly move to scrap SDLT entirely. It’s unlikely that will happen as SDLT generates a significant amount of revenue, it is a relatively straightforward tax administratively and is difficult for taxpayers to avoid.

Instead, we expect there could be significant changes to the levels at which individuals pay SDLT on residential property transactions. The threshold at which individuals start to pay SDLT could increase from £125,000 to £300,000, with similar increases in other thresholds reducing the overall cost for all individuals seeking to move home.

This would take the majority of property transactions out of the SDLT net, as the average house price was £292,118 in July 2022 according to the UK House Price Index. It should be noted that SDLT is only payable in England and Northern Ireland and a bold change to the SDLT rules could put pressure on the administrations in Scotland and Wales to make similar changes to their equivalent property stamp tax regimes.

Business tax

Corporation tax rate

An increase in the main rate of corporation tax to 25% for companies with profits in excess of £250,000 has been on the statute books since 2021 and is due to take effect from 1 April 2023. Under the currently enacted rules, only companies with profits of less than £50,000 would continue to pay tax at the current rate of 19%, with those earning between £50,000 and £250,000 paying at an effective rate between 19 and 25% (the thresholds are reduced if there are other companies under common control). One of Ms Truss’s key pledges on the campaign trail was to scrap this increase, so we expect the Chancellor to confirm that the relevant legislation will be repealed. This is another expensive decision. The higher rate was anticipated to raise up to £17bn annually when it was announced in 2021, so the Government will be hoping this policy reversal provides an effective fiscal stimulus that mitigates the shortfall.

Capital allowances

In previous economic slowdowns the Government has sought to incentivise capital investment via capital allowances. Major incentives for capital investment are due to be removed from 31 March 2023, when the 130% ’super-deduction’ for company spending on most new plant and machinery ends. At the same time, the limit for the annual investment allowance (which effectively provides 100% relief for capital expenditure in the year of acquisition) will reduce from £1m to £200,000. Under Boris Johnson, the Government was consulting on changes to the capital allowances regime. Since taking office, Mr Kwarteng has apparently told Treasury officials to ‘focus on growth’. An overhaul of the capital allowance regime may be too complex for this fiscal announcement, but it may emerge ahead of the next election. It wouldn’t, however, be unreasonable to expect immediate announcements to include increasing the permanent level of the annual investment allowance to say £500,000, introducing new first year allowances, or even a move to ‘full expensing’ – though this latter option may be seen as too generous. But it is also possible that the new Chancellor will want to take more time to formulate his preferred policy for tax relief on capital investment, and announcements in this area may therefore be delayed until later in the financial year.


Towards the end of the leadership campaign there were many rumours that Ms Truss was in favour of temporarily cutting the standard rate of VAT from 20% to 15% as a means of easing the cost of living crisis, or that there might be targeted cuts to the VAT rates applicable to domestic and/or business energy bills (5% and 20% respectively). That speculation has now been dampened by the subsequent announcement on energy bills. The mooted VAT cut had been estimated to cost £38bn per year, which may be regarded as unaffordable on top of the estimated £100bn cost of the energy bill price cap; however, it’s not impossible that we will see some movement.

Other taxes

The energy bill price cap is understood to entail the scrapping of green levies, and some are also calling on the Government to take further steps to mitigate the cost of fuel, perhaps by extending or increasing the 5p cut in fuel duty implemented by Mr Sunak in March 2022, which is due to come to an end in March 2023.