Income tax and universal credit: What does the Chancellor's mini-budget mean for people in Wales?
Watch the video report by ITV Wales reporter, Richard Morgan.
The Chancellor has abolished the top rate of income tax for the highest earners in his so-called 'mini budget' that he's described as "one of the most significant interventions the British state has ever made."
Kwasi Kwarteng axed the cap on bankers' bonuses and added restrictions to the welfare system, in a bid to solve "the riddle of growth" in the UK economy.
So what does this mean for people in Wales?
Income Tax
The basic rate of income tax in Wales will be cut to 19% from April 2023, worth an average of £170 and 1.2 million workers in Wales will see a cut in their National Insurance worth an average of £235 a year.
Also from April the additional rate of tax will be scrapped.
According to the most recent HM Revenue and Customs figures, 4,300 people in Wales paid additional rate (45%) income tax in Wales, representing 0.3% of those who pay income tax here.
1,266,700 paid the basic rate - 92.3% of those who pay income tax.
The Welsh Government collects 10p in the pound for each tax band.
In the most recent figures it collected £46m from additional rate payers compared to £1,843 million from basic rate payers.
It is to be assumed (though not confirmed in the HMT press release) that the UK Government will meet the £46m shortfall by increasing the Welsh Government's overall budget.
What does the Stamp Duty cut mean for us?
Cuts to Stamp Duty in England and Northern Ireland will see the Welsh Government receive around £70 million over the three-year 2021 Spending Review period, according to the UK Government.
Stamp Duty has been replaced by Land Transaction Tax here in Wales.
Under the current rules, homebuyers in Wales don't pay LTT if they buy a house worth less than £180,000, whereas that figure for stamp duty in England is £125,000.
The Welsh Government has said it will announce in due course what if any action it takes regarding LTT here in Wales.
National insurance
Under Boris Johnson, the amount paid increased by 1.25p for every pound earned by workers and employers in order to fund the NHS and social care. It meant NI was set at 13.25%.
Kwasi Kwarteng has already announced that he will reverse that recent rise in National Insurance (NI) from 6 November and the new Health and Social Care Levy to pay for the NHS will not be introduced.
Universal Credit
The Chancellor also announced a clamp down on Universal Credit by reducing benefits if people don't fulfil job search commitments.
Around 120,000 more people on Universal Credit are to be asked to take steps to seek more work, or face having their benefits reduced and Jobseekers over 50 will be given extra time with work coaches to help them return to job market.
What has the UK Government said?
The Chancellor of the Exchequer, Kwasi Kwarteng, said: “Economic growth isn’t some academic term with no connection to the real world. It means more jobs, higher pay and more money to fund public services. This will not happen overnight but the tax cuts and reforms I’ve announced today – the biggest package in generations – send a clear signal that growth is our priority.
“We want businesses across Wales to keep more of their own money to invest, innovate, and grow. Our income tax and national insurance cuts will mean hundreds of pounds a year more in the pockets of over a million workers in Wales.
“And our Energy Bill Relief Scheme is protecting thousands of businesses across Wales from rising energy costs with discounts of wholesale gas and electricity prices.
“Our Growth Plan sets the whole United Kingdom on the path for growth, building on the fiscal strength of our Union and releasing the enormous potential of this country.”
Meanwhile, Secretary of State for Wales, Robert Buckland said: “Today’s bold measures put economic growth at the heart of our plans for Wales and the UK.
“The UK Government has already committed to protect Welsh households and businesses from rising prices through the Energy Bill Relief Scheme. But a healthy, growing economy is the best long-term solution to the enormous financial pressures facing the entire country.
“By driving investment, cutting taxes, and backing business, the UK Government will get more people into well-paid jobs, allow workers to keep more of their hard earned money and get the Welsh economy growing again.”
How has the Welsh Government reacted?
In response to the announcement, First Minister Mark Drakeford said the mini-budget 'embeds unfairness across the UK'.
He posted a statement on Twitter, saying: "The UK Government should be offering meaningful support to those who need it the most. Instead, they’re giving tax cuts to the rich, bonuses to bankers and protecting the eye-watering profits of energy companies."
Minister for Finance and Local Government in the Welsh Government, Rebecca Evans, has also made a statement, saying the UK government will ‘embed unfairness’ by failing to provide enough support to lower income households in the cost of living crisis.
Rebecca Evans MS said: "Today’s announcements show the UK government is heading in a deeply worrying direction, with misplaced priorities leading to a regressive statement that will embed unfairness across the United Kingdom.
"Instead of delivering meaningful, targeted support to those who need help the most, the Chancellor is prioritising funding for tax cuts for the rich, unlimited bonuses for bankers, and protecting the profits of big energy companies.
"Instead of increasing funding for public services in line with inflation, we get a Chancellor blithely ignoring stretched budgets as public services find their money is simply not going as far as it did before.
"Instead of a comprehensive growth plan we get a missed opportunity to invest in the future. We could have seen a bold programme of investment in new green energy, tackling rising bills and improving our energy security in the long-term to help stop this kind of crisis happening again.
"Here in Wales we have provided around £400 million to help people pay essential bills, including targeted support for those with lower incomes. But the majority of key levers for support lie in the hands of the UK government and we simply cannot afford more of the same. We cannot afford a UK government that does not understand or care about the severe challenges people are facing.
"We were promised a statement that would ensure immediate support would be delivered, but this falls well short of what was needed."
What about other Welsh politicians?
Meanwhile, Andrew RT Davies, Leader of the Welsh Conservatives in the Senedd commented following the mini-budget reveal, saying: “You can’t tax your way to prosperity. What we’ve seen from the Chancellor and Prime Minister is a bold plan to grow our economy, boost jobs and increase wages.
“It’s absolutely right that our country should have the competitive edge for businesses to lay down roots and create jobs for British workers.
“And, when people are struggling with the cost of living, it’s fundamental that they can keep more of their own money.
“These announcements, along with the support for households and non-domestic customers with energy bills, show that this Conservative Government is here to deliver, with pace, for everybody in the UK.
“As areas of England bid to become enterprise zones, and as stamp duty is slashed, they enter the fast lane on the economic motorway. But thanks to Labour, in those areas, Wales is parked on the hard shoulder.
“So it’s fundamentally important that the Labour Government get onboard with enterprise zones and stamp duty cuts, and get Wales into the fast lane too.”
Welsh Conservative Shadow Minister for Finance has also made a statement. Peter Fox MS said: “Today shows that the UK Conservative Government has a comprehensive plan to provide a sharp boost to the economy by putting cash back into people’s pockets. Labour in Wales has the power to cut taxes in Wales but chooses not to.
“This Conservative Prime Minister is putting aspiration, opportunity and growth at the heart of the economy. Yet, Labour Ministers continue their reckless tax and waste policies, from implementing a tourism tax to wasting £100 million on more politicians in Cardiff Bay.
“Mark Drakeford needs to take a leaf out of Liz Truss’ book and take immediate action to support hard-working people and struggling businesses, stimulating the Welsh economy rather than stifling it.
“Let’s not forget that Labour admitted they didn’t know what they were doing on the economy – the Chancellor has delivered a clear plan for growth today, Labour need to follow it.”
Meanwhile, Welsh Liberal Democrat Leader Jane Dodds MS has labelled the plans announced as “a hideously out-of-touch’ budget designed to benefit the mega rich at the expense of ordinary citizens”.
Commenting, Jane Dodds MS said: “What we have seen today is gross negligence. The Conservatives are intent on a budget that robs the poor to pay for the mega rich.
“Someone on £200,000 a year will benefit by an extra £3,000 a year meanwhile those on the breadline will continue to struggle. It is almost criminal and completely detached from reality.
“Cuts to cooperation tax, the removal of the bankers’ bonus cap and the abolishing of the top band of income tax for those earning over £150,000 will do absolutely nothing to help the average family this winter.
"The Conservatives are reheating the same policies they've tried for the last 7 years that haven't worked and have instead left the UK with stagnant growth, widening inequality and one of the lowest productivity rates in Europe.
“This is the most financially irresponsible budget I have ever seen laid out and it will inevitably lead to either cuts in public services or more debt for our children and grandchildren through increased borrowing.
“We need a general election immediately to remove this irresponsible and reckless Conservative Government out of power.”
Plaid Cymru’s Treasury spokesperson, Ben Lake MP said: “The Chancellor’s statement today was about supporting those on the highest incomes. 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.”