Thursday, December 01, 2022

The craze prepares ‘scissors’: what to expect from new scheme to cover UK financial ‘holes’


On November 17, Britain’s Chancellor of the Exchequer Jeremy Hunt will announce a massive package of economic measures to stabilize public finances and regain credibility lost in the turmoil of Liz Truss’s ill-fated government. Though the presentation was scheduled for October 31, the new Prime Minister Rishi Sunak took advantage of the calm in the markets and extended the deadline.

The new cabinet is trying to call for £50 billion in the medium term amid spending cuts and tax increases to reduce debt as a ratio of gross domestic product (GDP).

Although no final decision has been taken, these are the main proposals on the table:

tax on energy

Hunt is considering raising the windfall tax on UK oil and gas companies, which was first introduced by Sunak as chancellor in May. Hunt is considering a major expansion of tax, increase the rate from 25% to 30%And it has been extended from 2026 to 2028. According to a person familiar with the matter, he is also considering applying it to power generators.

This measure will increase revenue from the current tax by 50%, up to £40,000 million In five years, according to the newspaper TimesWhich cites internal government estimates, although this depends on the volatility of energy prices.

No relief in personal income tax

Hunt plans to extend the current four-year freeze on income tax limits and exemptions introduced by Sunak to 2021, to allow it to increase. Around £5bn per year by 2027-28according to him financial Times, Wire It says it may raise the top rate of income tax from its current level of 45%, or reduce the threshold at which it is effective from the current £150,000.

Because of higher inflation, the threshold freeze has the effect of pulling more people into the tax system or into a higher tax bracket, thereby increasing revenue for the Treasury.

according to saturday’s edition WireThe ministers have discussed the possibility of reducing the income tax relief rate for taxpayers from the highest rate of 40% to a flat rate of 20%. They are also looking to increase the number of high-income earners whose tax relief has been further reduced.

higher tax on capital gains

The chancellor is also considering increasing the general rate of capital gains tax, a levy on gains from the sale of assets. Current rates range from 10% to 28%, and the top rate will increase by one percentage point. 145 million poundsAccording to Treasury estimates.

It is also studying the possibility of deduction of exemptions and bonuses.

reduce the blow to the banks

Hunt and Sunak have to make an important decision about bank surcharge, which is a rate of 8% on bank profits, in addition to the normal corporate tax rate. As chancellor, Sunak had said he would reduce the levy from 8% to 3% as the corporate tax was going to increase from 19% to 25% and did not want the UK banking sector to become uncompetitive.

Hunt expected to keep Sunak’s plan Surcharge reduced to 3%as reported by Sunday TimesCiting government officials.

less discount for dividend

Two people familiar with the matter noted that tax exemptions are being cut for dividend income, a move that will affect shareholders and the company’s owner-managers. This is currently set at £2,000, but reducing it to £1,000 will add up to some 455 million pounds per yearAccording to Treasury calculations.

Hunt is also considering increasing tax rates on dividends to 1.25 percent, according to financial Times,

foreign aid ban

Hunt is expected to keep the foreign aid budget at 0.5% of GDP for the next two years, rather than increase it to 0.7% in 2024-25, as Sunak had previously promised. The UK had spent 0.7% of GDP on foreign aid, but cut the amount by 0.5% during the coronavirus crisis.

solution will be 4,000 million. saving of pounds per year, according to Wire,

increase municipal tax

The chancellor may allow local authorities to collect more money than municipal taxes, according to Times, Municipalities are currently required to hold a local referendum if they want to increase the tax to more than 2.99%.

cut public spending

Ministries actually prepare for spending cuts. reading treasure 2% wage hike across public sector In 2023-2024, which assumes inflation for nurses, teachers and police officers will bottom out, reports Times,

Expenditure on capital projects is also expected to be cut. Cabinet Minister Michael Gove has indicated that longer-term projects may be delayed or terminated.

on Monday, Wire reported that Hunt and Sunak are planning spending cuts 35 billion of pound.

Social benefits and pensions

The government has to make politically controversial decisions about increasing social benefits and pensions. according to inflation Or aligned with the minimum measure of revenue growth. Choosing this last option would mean 13,000 million savings pounds, but it will probably provoke a major political backlash.

Sunak and Hunt plan to unveil a secret tax attack on pensions later this month Freezing of lifetime allowance for two more yearsAccording to Wire, This allowance is the total amount that a British can deposit in all of his pension savings without incurring any tax burden. According to analysts’ analysis, a term increase that would adjust for delayed pricing from 2025 to 2027 would mean two million savers would face a tax burden of up to 55% on their retirement funds at the end of that period.

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