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What the ’emergency budget’ means for YOU: from cutting the basic income tax rate to 19 pence to reversing the increase in national insurance… how the Chancellor’s aid scheme will affect the British amid a crisis in the cost of living
- Chancellor uses ’emergency budget’ to cut base income tax rate by 1p
- Kwasi Kwarteng also abolishes 45p tax rate paid by people over £150k
- Treasury estimates that more than 30 million taxpayers will benefit from changes
More than 30 million taxpayers will benefit from an income tax cut next year, Kwasi Kwarteng announced today.
The chancellor used his ’emergency budget’ this morning to cut the base rate of income tax by 1 pence from April.
It means the base rate will now be reduced from 20 percent to 19 percent a year ahead of schedule.
The Treasury estimates that next year 31 million taxpayers will benefit from the 1 pence cut, with an average profit of £170.
Mr Kwarteng also dramatically announced that he is abolishing the 45 pence tax rate, which is currently paid by those earning more than £150,000 a year.
The extra rate will be removed from April and means all annual income above £50,270 will now be taxed at 40 percent, the current higher tax rate.
The Treasury Department estimates that some 660,000 people will benefit from the abolition of the additional tariff next year.
Chancellor Kwasi Kwarteng used his ’emergency budget’ this morning to cut the base income tax rate by 1 pence from April
Good news, but we need help now
A struggling family of four will spend the money they save through a reduction in the basic income tax rate on food and energy bills.
Becky Rigg, 26, and husband Dan, 25, were among the thousands predicted to nearly triple their energy bills this winter.
Their finances took a hit when Mr Rigg, a self-employed school teacher, was forced out of work for more than six months due to chronic fatigue.
The couple, who have two children — Reuben, two and Jessie, three weeks old — said the April tax cut couldn’t come soon enough. Ms Rigg said: ‘These changes won’t affect us until April, when we file the tax return, but they’re not helping us now.’
Due to Mr Kwarteng’s changes to income tax next year, those making £20,000 a year will save £74.30, while those making £50,000 will save £174.32 and those making £200,000 will save £2,877.
Liz Truss, who is entitled to a salary of £164,080 as Prime Minister, is lining up to save more than £1,000 in income tax.
Apart from cutting income tax, the chancellor also confirmed today that he is canceling the increase in national insurance contributions to give workers a further boost.
The 1.25 percentage point increase was introduced in April by former Chancellor Rishi Sunak. But as of November 6, it will be reversed.
Mr. Kwarteng is also canceling the planned health and social care levy – a separate tax that will come into effect in April to replace the National Insurance increase this year.
The Treasury estimates this will benefit 28 million people in the UK, yielding an average saving of around £135.
The levy is expected to bring in around £13bn a year, although the Chancellor today pledged to keep funding for the NHS and social care at the same level as planned.
Mr Kwarteng told the House of Commons that his tax changes were part of a ‘new approach for a new era’, as he and Ms Truss try to ‘unlock the enormous potential of this country’.
He claimed the austerity measures would mean Britain has “one of the most competitive and growth-promoting income tax systems in the world.”
In the ’emergency budget’, the chancellor also confirmed an ‘Energy Price Guarantee’ to limit the cost of electricity and gas for households.
It means the typical household energy bill will be frozen at £2,500 for the next two years.
“For an average household, that’s a saving of at least £1,000 a year, based on current prices,” Mr Kwarteng told MPs.
“We are continuing our existing plans to give all households £400 off their bills this winter.
“So together we cut everyone’s energy bills by an expected £1,400 this year.”
The current tax changes will not affect the income tax rates in Scotland as set by the Scottish Government.
This will further increase the divergence between the amount paid north and south of the border.
Prime Minister Nicola Sturgeon expressed her opposition to copying Mr Kwarteng’s tax cuts.
She claimed the chancellor’s “reckless” action would benefit the wealthiest over the poor and middle-income, “fuel” the pound and drive up the cost of borrowing.