Today (23 September), Chancellor Kwasi Kwarteng set out his 'mini-Budget' in the House of Commons, as he hailed a "new era" for the UK economy. Our legal experts across our sectors provide their thoughts on some of the changes.
The Chancellor announced plans to review the tax system, which includes cancelling the proposed increase to corporation tax. Graham Samuel-Gibbon, head of the Tax & incentives team, commented:
"Well, there was nothing 'mini' about that mini Budget! Although many of the announcements had been trailed as pledges in Liz Truss's leadership campaign, there is still plenty for businesses to digest.
"By keeping corporation tax at 19% and scrapping next year's planned increase to 25%, the government clearly hopes to generate investment in the UK. Whether this will have the desired effect is open to debate: many businesses may feel that tax relief on capital expenditure would be a better incentive for investment than low tax rates. Of course, making the current £1 million Annual Investment Allowance permanent is helpful, but does this go far enough?
"Businesses will welcome the repeal of the much-criticised reforms to the off-payroll working rules and reversing the proposed National Insurance rises will improve cash-flow for employers. The introduction of new Investment Zones should also provide tax benefits for businesses investing in designated locations, in the form of enhanced capital allowances and relief for SDLT, National Insurance and business rates.
"There was also an unexpected announcement in store for high earners, with the scrapping of the 45% additional rate of income tax from April 2023. However, this is unlikely to be popular with some who feel the Chancellor's proposals are disproportionately benefiting the wealthy."
The Chancellor has also announced his intention to simplify the IR35 rules by repealing the 2017 and 2021 reforms. Partner James Ross in the Tax & Incentives team had the following thoughts:
"The repeal of the 2017 and 2021 IR35 reforms doesn't abolish IR35 altogether – it reactivates the 'old' IR35 rules (dating from 2000) for individuals engaged by larger businesses and public authorities through personal service companies. In practice, it transfers any responsibility for operating PAYE from the engaging party to the individual (through the personal service company).
"From the engaging party's perspective, it simplifies matters, as they can insulate themselves from any PAYE risk by requiring contractors to engage through personal service companies. But underlying analysis is not made any easier – it just becomes the responsibility of the individual.
"Real simplification would involve making it easier to determine whether an individual is employed or self-employed for tax purposes, but the government has recoiled from going down that difficult path before, and there's no suggestion that they are going to look at it again now."
Citing the aim of increasing investment from global banks in the UK, the Chancellor confirmed his intention to scrap the cap on bankers' bonuses. Employment partner Helen Farr commented:
"Kwasi Kwarteng’s plan to scrap the bankers bonus cap will be well received by those who run banks in the UK.
"Following the introduction of the cap many banks were forced to introduce higher fixed pay as a way to retain staff when their bonus opportunities had been slashed by introducing the cap. If the cap is abolished banks will be able to revert to their traditional pay strategy of rewarding performance well but reducing fixed salary costs.
"This may not be the popular move amongst those working in banks who may prefer on an individual level the certainty of a higher fixed income. Nonetheless it also gives high achievers the opportunity to earn much higher remuneration which is going to be attractive to many.
"It will be interesting to see whether the government retains many of the safeguards recently implemented when awarding bonuses, such as the ability to demand repayment of the bonus if a banker is accused of misconduct. Some UK bankers may feel they have the worst of all worlds less fixed income while working in an environment that is subject to the pressures of increasing regulation."
The Chancellor also announced plans to bring forward a new bill to unpick planning restrictions and create new investment zones. Real estate partner Al Watson said:
"Three cheers? Three yeses…
"The first yes – undoubtedly we do need planning law and policy reform, and we have been promised it for some time. Today's announcement on Investment Zones is good news, and we need more. What else? We need to see urgently, next week, the proposals to unpick planning restrictions, speed up processes, and the release of publicly owned land. Yes, to all of those too. We all have our pet hates and our wants and needs– does government understand what ours are?
"The second yes – Investment Zones are the 2022 version of a 1980s classic from the then secretary of state and now Lord Heseltine with his vision of and delivery of Enterprise Zones. Government – whether central or local or both – lays the groundwork by way of reform to make development easier and the private sector steps in to provide development for growth.
"The third yes – much more progress and reform is needed as the pandemic, Brexit, and any imminent recession does not mean that the need for development of land, new buildings and green infrastructure is any less urgent.
"So, what next? This new government needs also to understand that the previous government did not deliver on its own manifesto pledge of more sustainable development; it failed. In explaining that it wants that sustainable development to be considered appropriately at a local level, this government must remind itself that interventions into the planning system."