Mini-budget: What Kwasi Kwarteng's £45bn tax cut package means for you
UK chancellor Kwasi Kwarteng has set out plans to get the economy firing on all cylinders in his first fiscal statement, in what the government dubbed a "growth plan".
Speaking in the House of Commons, the chancellor announced tens of billions of pounds of increased spending and tax cuts in the mini-budget on Friday.
In many ways this was a topsy-turvy budget, giving the biggest boosts to the people who need it least, and leaving the most vulnerable out in the cold.
It reflects the fact that the government is less concerned about the impact tax cuts will have on us personally, and more worried about what they will do for its relentless new growth agenda.
However, there were still some nuggets in there that could help ease your budget.
Income tax and national insurance cut
Some of the biggest changes will affect how much tax you pay on your income.
Kwarteng said he would bring forward the planned cut in basic rate tax — from 20p in the pound to 19p — so it kicks in this coming April.
He also axed the top rate of tax for people earning more than £150,000. These additional rate taxpayers will become higher rate taxpayers, and see their rate of tax drop from 45% to 40%.
Read more: Mini-budget: What are the new tax rates and tax cuts and when will they kick in?
The cut in income tax comes alongside the drop in national insurance announced a day earlier, which removes the extra 1.25 percentage point rise introduced this April — and is likely to come in from November.
Both will provide some serious savings for all taxpayers, at a time when it’s incredibly welcome.
However, higher earners will receive far more of the benefit than those earning less. Someone making £20,000, for example, will save £167 a year in a combination of income tax and national insurance from next April while someone earning £80,000 will save £1,220.
Meanwhile, those who earn below the income tax threshold, or who receive their income from benefits, will gain nothing. Essential expenses like energy and food make up far more of their household budget, so the fact these prices have risen so alarmingly over the past 12 months has put millions of people under impossible pressure.
The Energy Price Guarantee announced a couple of weeks ago will make an enormous difference to everyone, including lower earners. However, by setting the guarantee at £2,500 for the average user, it means prices will still be higher in October, which will be an enormous challenge for people whose finances were already on a knife edge before the rise.
What these cuts mean for retirement savings
It’s the impact of these taxes on our incomes that’s important for most people, but it may also have implications for your pension.
At the moment basic rate taxpayers get 20% tax relief on pension contributions, but after the change they’ll get 19%. It’s not bad news — their contributions will still be completely tax free.
However, for someone who is a basic rate taxpayer now and expects to be so in retirement, it opens a gap between pensions and the Lifetime ISA (LISA).
Read more: Stamp duty cut will do more harm than good and push up house prices
Within the LISA you get a bonus that’s the equivalent to 20% tax relief — which means a bigger boost than in a pension — plus all the income you take from your LISA will be tax free too.
It means that once you’ve taken advantage of your workplace pension, and got as much of a contribution from your employer as possible, if you qualify for a LISA, this could be a sensible home for the next £4,000 a year of your retirement savings.
If you’re a super-high-earner, at the moment you get 45% tax relief on pension contributions and from April you’ll get 40%, so you might want to fill your boots while the going is good.
There’s also extra help for anyone planning to buy a property. The stamp duty threshold has been doubled from £125,000 to £250,000, while the threshold for first time buyers has been raised from £300,000 to £425,000.
The value of properties that can benefit from first time buyer relief has also risen from £500,000 to £625,000.
Taken together it means that 200,000 people will be lifted out of paying stamp duty and all changes are effective immediately.
Read more: Mini-budget: Trussonomics baffles investors as bonds and pound tank
If you’re in the process of buying a house, this is a brilliant boost — because you’ve saved thousands of pounds by pure chance. It might also accelerate your plans if you were struggling to build a big enough deposit — and cover the cost of stamp duty too. However, eventually we’re likely to pay for these short-term benefits.
By stimulating demand, it’s likely to push house prices up, and a study done when stamp duty relief was first introduced demonstrates that these price rises are likely to wipe out any cost savings for buyers.
What’s even worse is that a tax cut up front is likely to increase your monthly payments for decades.
There’s also a risk that this pushes properties further out of reach for millions of people, which could eventually take a toll on the property market.
Freeze in alcohol duty
The news of a freeze in alcohol duty usually raises a cheer, but there’s unlikely to be much to celebrate.
This is the absence of a rise rather than a cut, and the price of alcoholic drinks in the supermarket is rising alongside everything else.
In pubs, meanwhile, you’re likely to see prices continue to climb as pub owners wrestle with everything from rocketing fuel bills to higher staff costs, and push up the price of a pint to make ends meet.
Watch: Chancellor's mini-budget: At a glance
Sarah Coles is a personal finance analyst at Hargreaves Lansdown and co-presents Switch Your Money On podcast.