The markets hated the ‘mini-budget’ delivered by Chancellor Kwasi Kwarteng last week. The pound had hit a record low against the dollar on Monday morning as the BBC reports.
In early Asia trading, sterling fell close to $1.03 before regaining some ground to stand at about $1.06 on Monday morning in the UK. It was also significantly down against the euro.
Both sterling and five and ten-year gilts had been punished on Friday as as Money Marketing reported here.
But it was the perception over the weekend that Kwarteng was doubling down on his message and promising even more tax cuts that may have proved the immediate trigger.
Many commentators and experts are now suggesting an emergency meeting of the Bank of England to raise rates.
It was not, of course, a budget because that is accompanied by full analysis including from the Office for Budget Responsibility.
The measures may be more popular among the better off who look to stand to benefit but it remains, at time of writing, a huge gamble that a big tax stimulus, funded for now by borrowing including £70 billion extra by next April, will bring the economy and the public finances back into kilter.
Whatever advisers think of the economics, some measures will be of benefit to clients as Sky’s website lists here. Investment Week also listed 13 key takeaways.
The Telegraph lists its view of the winners and losers here.
The eye catching measures include the near immediate ending of the National Insurance increase after six months meaning it will not turn into the health and social care levy, the removal of the additional rate tax band from April, a cut in basic income tax of one per cent to 19 per cent (though likely not in Scotland), a huge increase in the stamp duty threshold, big concessions on dividend tax and the removal various regulations regarding IR35 putting the onus back on contractors not the public nor private sector in terms of disclosure.
It also included a decision not to raise corporation tax by a bracing 6 per cent from 19 to 25 per cent.
In terms of stamp duty, no levy will be paid on the first £250,000 of a property, up from the previous £125,000 as CityAM reported.
For first-time buyers the stamp duty threshold will now be £425,000, as opposed to £300,000.
Some elements of the property industry have welcomed the change, as Mortgage Strategy reports.
But this is an interesting quote from Stuart Law - Assetz Group chief executive Stuart Law - “A [stamp duty] cut will undoubtedly support many FTBs and buyers on lower incomes, granting more people access to the housing ladder by offsetting increasing mortgage rates and rising house prices.
“But, a [stamp duty] cut is going to stimulate demand further at a time when it is already vastly outstripping supply and that’s only going to send prices one way.”
Limits on the Seed Enterprise Investment Scheme and Company Share Option Plans would be increased to "make them more generous". The former's will be increased to £250,000 and the maximum age of the business raising capital increased to three years.
There are some potential pension matters to consider.
“Top earners are being urged to “pile into pensions” before April next year following a surprise move by Kwasi Kwarteng, the chancellor, to ease the tax burden on the nation’s wealthiest as the FT writes.
The Institute of Fiscal Studies is scathing in its assessment. It says: “Mr Kwarteng has shown himself willing to gamble with fiscal sustainability in order to push through these huge tax cuts. He is willing to shrug off the risks of inflation, and to invite significantly higher interest rates. And he has avoided scrutiny by presenting a Budget in all but name without accompanying forecasts from the Office for Budget Responsibility.”
The Resolution Foundation likewise. It says: “The new squeezed middle. Middle income Britain stands to lose most from the overall impact of all tax and benefit policies announced over the parliament. The poorest fifth of households gain £90 on average, with the middle fifth losing £780, and only the top five per cent gaining significantly (£2,520).”
In other perhaps unsurprising news, the Link takeover deal collapses as a result of the FCA conditions in terms of potential compensation for Woodford investors.
