The new Chancellor has been swift to revoke almost all of the policies put forward in September’s mini Budget, which sent the pound into freefall, spooked the mortgage markets and ultimately, led to the resignation of former Chancellor Kwasi Kwarteng.
Tax cuts reversed
First, the Chancellor announced that the intended cut to the basic rate of income tax to 19 per cent would be revoked.
However, he added that while the government aims to proceed with the cut in the future, this would only take place when economic conditions allowed for it. The basic rate of income tax will remain at its current rate of 20 per cent.
The intended repeal of the 2017 and 2021 reforms to the off-payroll working rules (IR35) have also been scrapped.
In addition, the announced cutting of dividends tax by 1.25 percentage points, a freeze on alcohol duty and a new VAT-free shopping scheme for non-UK visitors have also been kicked into long grass.
Commenting on the statement, John Phillips, national operations director at Just Mortgages, said: “With many of the key pledges of the mini Budget now reversed or scrapped entirely, it seems this is far more than just a U-turn, but rather a cannonball to the new PM’s entire agenda.
“Nevertheless, the hope is the changes will bring back some much-needed confidence to the market and interest rates will begin to stabilise.”
Energy bills support review
Meanwhile, the Energy Price Guarantee, which would curb average energy bills to £2,500 a year for the next two winters, is also in doubt as Hunt said this will be reviewed after 2023.
While no details were given on how the guarantee will change, it’s expected that help may only be available for low-income households.
Richard Pike, Phoebus Software’s chief sales and marketing officer, said: “The additional uncertainty of the review of the fuel allowance now being six months instead of two years will be a concern. [However], the reality is that wholesale fuel prices could change in six months and in April, the need for lighting and heating is a lot less over the summer months, and so this is a sensible approach.”
Stamp duty cuts stay in place
The government’s reversal of the National Insurance increase and the Health and Social Care Levy, and the cuts to stamp duty, will remain in place.
In terms of stamp duty, this will mean that the level at which first-time buyers start paying stamp duty will rise from £300,000 to £425,000.
The government will also allow first-time buyers to access relief, where they pay five per cent stamp duty when buying a property of less than £625,000, which is up from £500,000.
The changes will cut stamp duty bills for all movers by up to £2,500 and first-time buyers will be able to access up to £11,250 in relief, the government noted.
How will the stamp duty cut affect the market?
Emma Hollingworth, distribution director at MPowered Mortgages said: “The new Chancellor’s decision not to scrap the cuts to the stamp duty is an indication that the government is still serious about tackling the issues facing homebuyers.
“Interest rates are now at the highest level since 2008, meaning many first-time buyers will struggle to get on the housing ladder, so the cuts to stamp duty are a welcome change for this group in particular.”
Simon Webb, managing director of capital markets and finance at LiveMore, also welcomed the news.
He said: “It is positive that the stamp duty cut will stay in place, but more important will be its effect on the markets.
“We all need to hope that this speech and the next fiscal statement on 31 October, will be enough to steady the markets enough that lenders can reprice and reintroduce the hundreds of mortgage products that necessarily had to be pulled due to market instability.”
Pike noted that while the stamp duty cuts were welcome, lenders needed to innovate to make up for the shortfall in products.
He said: “While the demand is there and the changes to stamp duty remain, along with an imminent increase in interest rates, pressure is almost certainly going to be on lenders.
“The reduction in the number of mortgage products available since the mini Budget is a cause for concern, especially for first-time buyers. Now is the time for lender innovation to ensure that the continued demand can be catered for.”
The Chancellor is expected to announce further changes to fiscal policy on 31 October.