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The Great U-Turn for 2022 Budget!

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Neil Da Costs
By Neil Da Costa, Senior Tax Lecturer Link to Neil Da Costa's LinkedIn profile

An accountant for Prime Minister

Kaplan has been training CIMA accountants for decades, while Kaplan Publishing is the official provider of CIMA materials. When Liz Truss became the Prime Minister, it felt like a good omen for accountants. Truss is a CIMA-qualified accountant, so it’s great to know that one of our own can rise to the highest office in the land.

Accountants are noted for their good financial stewardship, and for carefully managing the cash flows of organisations without taking excessive risk. Truss appointed Kwasi Kwarteng as Chancellor of the Exchequer. Kwasi is an old Etonian with an impressive academic record. He was top of his class at Cambridge before winning the prestigious Kennedy Scholarship to Harvard and appeared more than capable of managing the UK economy.

Dramatic changes

Kwasi Kwarteng went ahead to deliver a tax-cutting budget, heralding the largest tax cuts since 1972! The positive measures included reducing the basic rate of income tax from 20% to 19%, and reversing the increase of national insurance of 1.25 (previously imposed by Rishi Sunak). In addition to this, the government planned on subsiding rising energy costs for everybody in the country, aiming to help with the cost of living crisis.

However, other budgetary measures appeared to go too far, with the proposed cancellation of the increase in corporation tax from 19% to 25%. In addition, Kwarteng surprisingly increased the threshold for stamp duty for first-time buyers to £425,000 to boost the property market. Ultimately, these drastic measures abandoned sound fiscal policy.

Furthermore, Kwarteng abolished the additional rate of tax of 45% for the wealthy who earn over £150,000. The dramatic move only affected the top 1% of earners in the UK. According to the Treasury, 660,000 people would now pay £10,000 less in a tax year.

In another unjustified measure, he abolished the cap on banker bonuses, which is currently 200% of your basic salary. This cap means that a banker earning £200,000 a year could only receive a bonus of £400,000. Now, these bankers can get a bonus of £1 million! Once again, these measures only helped a select few millionaires.

A little turbulence

At Kaplan, we offer a range of accounting qualifications such as AAT, ACCA, and ICAEW. These qualifications require a detailed understanding of tax, so the budget is of great interest to our learners. Aside from studying Tax, our Kaplan students also study economics, so they know that it is important to balance tax reductions with savings elsewhere in the economy.

However, Liz and Kwasi proposed to pay for the tax cuts through increased borrowings.

The budgetary announcement caused devastation in the financial markets, with the stock markets falling and the sterling reaching a historic low against the dollar.

Therefore, in a dramatic U-turn, Kwasi Kwarteng admitted that he made a mistake, thus reversing his position and retaining the 45% additional tax rate for income in excess of £150,000. Kwasi called the U-turn ‘a little turbulence,’ but for a new Chancellor, it certainly looked like a baptism of fire.

Starting again

In a shocking development, Former Prime Minister, Liz Truss, then sacked the Chancellor of the Exchequer, Kwasi Kwarteng. The duo both believed in a low-tax high growth economy and co-authored a book titled Britannia Unchained (Global Lessons for Growth and Prosperity). However, the turmoil in the capital markets emphasises the importance of balancing the books and funding tax cuts by other tax inflows.

Liz Truss was then hopeful of restoring public confidence with the appointment of Jeremy Hunt as the new Chancellor. The experienced politician, who has survived many political storms in the past, has taken an axe to Kwasi Kwarteng’s tax-cutting proposals, and it’s now doubtful that any of the measures will survive.

This illustrates the importance of tax in our daily lives. If you would like to develop a specialised tax career, Kaplan offers a choice of two highly regarded qualifications: The Association of Taxation Technician exams, and the higher-level Chartered Institute of Taxation exams.

Neil Da Costa is a Senior Tax Lecturer with Kaplan. He believes in keeping things simple and inspiring his students. He is the author of two tax books, Advanced Tax Condensed, and Tax Condensed. These innovative books feature memory joggers, enabling students to learn the vast tax syllabus using accelerated learning techniques.

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