Chancellor Jeremy Hunt reverses tax measures and limits energy support in new emergency plan: what it means for your money

Chancellor Jeremy Hunt has cancelled tax reforms and watered down energy support introduced just a few weeks earlier in September’s mini-Budget in a bid to calm markets after immediate financial turmoil wreaked havoc on mortgage rates.

In his bombshell announcement on Monday morning only the stamp duty changes and cut to national insurance are being kept. 

“There will be more difficult decisions to be made on tax and spending I'm afraid,” he said. “All departments will need to double their effort and some areas of spending will be cut. Our priority will always be the most vulnerable.”

The new Chancellor partially brought forward the plan by a fortnight to try and calm the financial markets. Further policies are expected to include reforms to childcare and a decision on whether to increase benefits in line with inflation. These will be announced on 31 October.

We explain what we currently know - and how much you’re likely to lose out on.

Energy Price Guarantee promised until April 2023 not October 2024 - though you may get help with rising bills after April

The Energy Price Guarantee - which limits the unit price you pay for gas and electricity and caps the typical household bill at £2,500 - will only last until April 2023 rather than October 2024, with targeted support only for the vulnerable beyond this point.

Hunt said the Treasury will review how to support people with energy bills beyond April 2023 in a way that will cost the taxpayer less, ensure the most vulnerable are still protected and incentivise energy efficiency.

It means after April 2023:

1. Lower-income households will likely qualify for an as-yet-undecided support package
2. Middle-income households may qualify  for an as-yet-undecided support package. Current predictions say wholesale energy prices will go up 73% in April, taking a bill for typical use from £2,500 a year to £4,350
3. There may be implications for people on fixed tariffs that were higher than the energy price guarantee rate – though we are awaiting further details on this.

There are still a lot of unknowns about the possibility of finding yourself at the mercy of the regulator’s price cap and facing higher bills in April. Right now analyst Cornwall Insight is predicting wholesale energy prices will go up 73% in April - taking a bill for typical use from £2,500 a year to £4,350. 

The cap is then predicted to then go down 15% in July to £3,700 a year - higher than the current cap of £2,500. This can all change.

Basic rate income tax to stay at 20% indefinitely - the average worker missing out on £174

The plan to cut the basic rate from 20% to 19% from next April is now shelved indefinitely in a move that will raise £32billion. It means even the previous plan to cut the basic rate to 19% from April 2024 will also no longer go ahead.

“It is a deeply held conservative value that people keep more of what they earn. But it’s not right to fund this tax cut,” said Hunt.

It means anyone earning up to £50,270 will now pay 20% income tax rather than 19% as promised by former chancellor Kwasi Kwarteng. 

What you’ll miss out on:

Stamp Duty cut to go ahead - first-time buyers can save a maximum of £6,250 but high mortgage rates may cancel out any benefit

Stamp duty is axed on properties up to value of £250,000 (increased from £125,000) with first-time buyers exempt on up to £425,000 (increased from £300,000). This is a permanent change, rather than a temporary measure as seen during the Covid pandemic.

What homebuyers will save

What first-time buyers save

It means first-time buyers can save a maximum of £6,250 on the purchase of their home.

However, while a cut to stamp duty may appear appealing, it may actually become irrelevant due to increasingly expensive mortgage deals and tightening affordability tests. Lenders are now increasing the cost of deals, with the typical two-year fixed 6.47% according to Moneyfacts, AND cutting the maximum they will lend a prospective homebuyer as they factor in higher energy and food prices and reduced disposable income.

National Insurance cut to go ahead - the average worker will save a paltry £217

The reversal to the National Insurance rise, to be applied to workers’ pay from 6 November, will remain.

What you’ll save:

However, with rising inflation, high food prices, pricey energy bills and increasing travel costs, any saving workers make here is unlikely to go very far.

Dividend tax cut scheduled for April 2023 scrapped - investors will have to pay more on their earnings

In April, dividend tax rates went up by 1.25 percentage points. Basic rate payers now pay 8.75% tax on dividends (up from 7.5%), higher-rate payers will pay 33.75% (up from 32.5%), while top-rate payers will pay 39.35% (up from 38.1%).

These increases were due to be reversed from April 2023, but will now stay where they are.

IR35 off-payroll tax reforms will remain - contractors will become employees and pay higher amounts of tax (or dropped)

The somewhat controversial continuation of IR35 will mean firms have to take responsibility for the tax paid by freelancers or contractors to stop so-called disguised employment, where such workers were in effect full-time employees who chose to pay less tax at a company by working “off payroll”