The UK government has announced massive tax cuts as part of a mini-budget worth billions of pounds. New Chancellor Kwasi Kwarteng revealed new plans on Friday which will see the top 45% rate of tax in the UK scrapped and the basic rate fall to 19% next year.
The measures, billed as the biggest tax giveaway in 30 years, also see a reversal of the rise in National Insurance, universal credit rules tightened for low-income households and the cap on bankers' bonuses lifted. Mr Kwarteng said the plans were aimed at growing the economy by 2.5% but critics say the borrowing needed to fund the tax cuts could lead to financial disaster in the UK, which is already seeing its highest rate of inflation in four decades. The value of the pound fell sharply on Friday and the cost of UK government borrowing rose.
Among the announcements are that April's National Insurance hike is to be reversed from November 6. The 1.25 percentage point increase was introduced under former chancellor Rishi Sunak but during the Tory leadership race Liz Truss pledged to change it.
While the changes will see many people have some extra money in their pocket, they will overwhelmingly benefit those on higher incomes, who are in line for some huge savings. Here is how much you will benefit from the latest announcement depending on how much you earn.
What has been announced?
As part of Friday's mini-budget, the 1.25 percentage point increase imposed by Rishi Sunak in April to pay for social care and dealing with the NHS backlog has been reversed. The National Insurance hike was first introduced in April and pushed up rates to 13.25% and 3.25%.
Mr Kwarteng said he would also be scrapping the planned health and social care levy which was due to come into effect next April and raise around £13bn a year. The government says that funding will now come from general taxation.
The basic rate of income tax will be cut by 1p to 19p from April 2023 and the 45p tax rate for top earners over £150,000 will be abolished, also from next April. It means that anyone earning more than £150,000 will be able to keep more of their earnings, as their tax will go down to 40 per cent for any income above £50,000.
How will it affect me?
The National Insurance cut will not affect working people under pension age who earn less than £12,570 a year, as these don't pay NI. Above that, the amount saved increases as earnings do, meaning it will benefit higher earners more than people on lower incomes.
Here is how much you'll save with the National Insurance cut depending on your earnings:
Income level: Saving per year from NI cut
As for income tax, once again, those on higher incomes will overwhelmingly benefit from the tax cuts. People will pay 1% less tax on any income between £12,570 and £50,270. They will then pay the same tax (40%) on income from £50,271 to £150,000. But above £150k, the savings really kick in as the tax rate goes down from 45% to 40% on income above that level.
Here is how much you'll save with the changes to income tax depending on your earnings:
Income level: Saving per year from income tax cut
Plaid Cymru’s Treasury spokesperson, Ben Lake MP said those on higher incomes would disproportionately benefit from the Commons statement on Friday and would do "absolutely nothing" to grow the Welsh economy. He said: "Households and businesses across Wales are facing a grim winter of unaffordable bills and soaring inflation, and the Government’s response is to engage in fantasy, trickle-down economics to please the super-rich.
“As rural households are offered the paltry sum of £100 to cover their energy bills, the top rate of income tax is being abolished and the limit on bankers’ bonuses is being scrapped. That is not just morally questionable, it is economically irresponsible.
“The cap on bankers’ bonuses was introduced across the EU in the aftermath of the global financial crisis. Scrapping the cap on bonuses risks a return to the excessive risk taking that led to the 2008 financial crisis in first place, and a repeat of policies that led to misery for millions of people.
“Tax cuts for the super-rich will do absolutely nothing to drive growth in the Welsh economy. Given their refusal to invest in our infrastructure, I urge the UK government to recognise that our government in Wales must be given the fiscal tools to unlock our economic potential ourselves. That is the only way to improve the lives of people across Wales.”