What exactly is going on...?

Let’s take a step back and break it down.

· Thursday 7th July - Boris Johnson resigns

· Tuesday 8th September - Liz Truss is appointed the new Prime Minister

· Wednesday 8th September - Truss appoints Kwasi Kwarteng as Chancellor of the Exchequer

· Friday 23rd September - Kwarteng and Truss release their ‘mini budget’ with the aim of ‘reducing household taxes and energy costs while promoting economic growth’. Kwarteng proposes the following:

- Energy price cap of £2,500 for the average household for 2 years

- Cutting basic rate income tax from 20% to 19%

- The 45% higher rate of income tax for high earners would be scrapped

- Cancel rise in corporation tax from 19% to 25%

- ‘Simplify’ IR35 rules (rules which govern off payroll working)

- Planned increases on in the duties on alcohol would be cancelled

- VAT free shopping for tourists

- No stamp duty payable for first £250,000 of house purchase (£425,000 for first time buyers)

- Rises in national insurance would be scrapped

- Cap on bankers pay would be scrapped

· Monday 26th September - Following this ‘mini budget’ the UK stock and Gilt markets enter complete meltdown, and the pound crashed to an all time low against the dollar. The Bank of England intervenes and props up the bond market to avoid a wider economic crisis in the civil service style pension market. The market views Kwarteng’s budget as a complete disaster for the UK economy, as he presented hundred of billions of pounds of cost, with seemingly no way of paying for any of it.

· Monday 3rd October - Kwarteng U-turns on 45% income tax abolition

· Wednesday 12th October - Bank of England says it will no longer support the bond market, having pumped billions into it already.

· Thursday 13th October - Kwarteng flies home unexpectedly early from Washington

· Friday 14th October – Truss sacks Kwarteng

With Kwasi Kwarteng’s ‘resignation’ and the appointment of Jeremy Hunt, global markets watched closely, with their fingers, toes and every other appendage crossed that they would do away with Kwarteng’s budget.

Hunt subsequently scrapped the following of Kwarteng’s changes:

- No cuts to dividend tax rates

- Repeal of the easing of IR35 rules for the self-employed introduced in 2017 and 2021

- No new VAT-free shopping scheme for overseas visitors to the UK

- No freeze on alcohol duty rates

- Basic rate of income tax to remain at 20%, not reduce to 19% from April 2023

- Energy price guarantee only until April 2023

The only tax cuts that remain are the raising of nil rate stamp duty, and the abolishment of the rise in National Insurance.

So, where do we go from here?

Economically, the focus of the government should continue to be to try and halt the rise in inflation, that is affecting our lives at the moment.

The coming winter will require a measure of personal spending discipline, like in no period since the late 80’s, regardless of the actions of government and the Bank of England.

The quicker that inflation can be brought under control both in the UK and around the world, the speedier the pressure will be lifted on our household budgets.