1:30 pm 14/10/2022
It has now been announced that Jeremy Hunt will serve as the new Chancellor of the Exchequer. This makes him the fourth chancellor this year.
The Rt Hon Jeremy Hunt MP @Jeremy_Hunt has been appointed Chancellor of the Exchequer @HMTreasury. pic.twitter.com/bldKWr3crG
— UK Prime Minister (@10DowningStreet) October 14, 2022
1:15 pm 14/10/2022
It is currently unclear when the new chancellor will be announced, or who it will be. Some are speculating that it will be announced before the press conference takes place so Truss can be more prepared to answer the onslaught of questions she is sure to face. However, as it is only 45 minutes away - the decision may take longer than that.
Those expected to be in the running are former chancellor for Boris Johnson and leadership opponent, Rishi Sunak; Minister for Equalities, Nadhim Zahawi; Secretary of State for Business, Jacob Rees-Mogg; with reports showing that Chair of the Health and Social Care Select Committee, Jeremy Hunt, is the top choice.
1:00 pm 14/10/2022
Kwarteng confirms he was asked to "step aside" by the PM rather than stepping down of his own accord, but wishes her well.
— Kwasi Kwarteng (@KwasiKwarteng) October 14, 2022
12:30 pm 14/10/2022
Kwasi Kwarteng is no longer the chancellor. This follows significant backlash to his mini-budget.
12:00 pm 14/10/2022
BREAKING - Kwarteng flies back from IMF talks in Washington for urgent talks with the prime minister.
She is set to hold a press conference - which he will not be attending.
Kwarteng arrived back in the UK at around 11:30 am to circling rumours that he will be given the sack.
This comes after reports that the government will be making a second U-turn on the mini-budget and making changes to the cancellation in corporation tax rise.
Small businesses make up 99% of the UK's business population, contributing massively to our economy and diversity of trade.
The future of small business in the UK has been on the brink for the past couple of years.
Small businesses in the UK encounter a number of obstacles. The economic downturn has made it difficult to survive, and the rising cost of energy is also a big concern.
Many businesses are still struggling from the devastating impact of the pandemic; going into lockdown meant many couldn't operate, and people had to adapt to circumstances they had never faced before. For example, moving to trade online, doing home deliveries, and expanding into new markets they were unfamiliar with.
Photo: Financial Times
Consumers had to become more mindful of their spending habits, and many companies were forced to borrow, which resulted in many having to close their doors for good.
And then, after we started to break away from the constant cycle of outbreaks, lockdowns and freedom days - the businesses that survived faced hiked inflation and business rates.
This placed immense pressure on small businesses, hence people urging the government to step in and help out where possible.
The government did take steps to support small businesses throughout the pandemic (such as the recovery loan scheme and bounce-back loans), but now, more needs to be done to ensure the future of small business in the UK.
Before becoming prime minister on 06/09/2022, Liz Truss served as the UK's Chief Secretary to the Treasury. In this role, she was liable for overall management and control of government spending.
In the past, she was a big champion of small businesses in the UK and vowed to help them grow and prosper.
In speeches made at past Tory party conferences and leadership debates against Rishi Sunak, Truss made it clear that opening up new export markets was a priority. She has a strong focus on British produce and business, suggesting that she would want to champion them and help them grow. Opening up new export markets and reducing red tape and bureaucracy should make it easier for businesses to operate, and in turn, prosper.
Photo: The Conversation
On 23/09/2022, the new chancellor of the exchequer, Kwasi Kwarteng, announced a new set of economic regulations - labelled a "mini-budget".
The government has a lot to deal with currently, juggling this as well as mitigating the spiking energy prices.
The announcement received a strong reaction from both sides, with many claiming that the mini-budget and tax cuts would only benefit the rich. Kwarteng hit back at these claims, saying, "they favour people right across the income scale." Truss initially refuted the claims, saying, "it simply isn't true". She later admitted that it would "disproportionately" benefit the rich, but maintained that it was the "right plan".
Kwasi Kwarteng delivers his economic statement. (Video credit: The Guardian)
Despite these claims, a statement released by the Treasury stated that people who pay basic-rate tax would be £130 better off, compared to £360 for higher-rate taxpayers.
Income tax
Cutting income tax can increase consumer spending power which in turn strengthens the economy. But, making these large cuts and cancellations will lead to increased borrowing - weakening the pound.
When consumers are paying less tax, it results in less money to the state, meaning that we need to borrow money to fund public sectors like education and healthcare.
What do cuts in income tax mean?
Income tax is progressive, which means that those who earn more pay more.
A cut in income tax would result in the highest earners paying less tax. These cuts may incentivise some people to work harder as they would keep more of their money; however, it could also lead to greater inequality.
If income tax grew, wealthy individuals may choose to invest their money elsewhere, outside the UK.
Income tax & the mini-budget
In the first mini-budget, it was proposed that higher-rate tax payments would be reduced from 45% to 40% - coming into effect as of April 2023. However, on 03/10/2022, the government took a U-turn and scrapped this change.
We get it, and we have listened. pic.twitter.com/lOfwHTUo76
— Kwasi Kwarteng (@KwasiKwarteng) October 3, 2022
Announcing the income tax cuts caused quite a bit of friction within the party.
Michael Gove, a core member of Boris Johnson's parliament, spoke out against it saying that it was "a display of the wrong values".
Former minister Michael Gove criticises the PM's economic plans and says they are a "display of the wrong values" #BBCLauraKhttps://t.co/LYlwCnlQGL pic.twitter.com/p1KtQz4xXm
— BBC Politics (@BBCPolitics) October 2, 2022
The Home Secretary, Suella Braverman, hit back, saying that it is unfair for party members to not show support for the prime minister and chancellor. Speaking at the Conservative Party Conference, she labelled it a "coup" and said her colleagues "undermined the authority of our prime minister in an unprofessional way".
Kwarteng originally wanted to cut income tax to incentivise growth, but said that it quickly became a "terrible distraction" from the other, core parts of the growth plan. He added that the 45p rate "fiscally wasn't the most significant" of the policies.
Another part of this saga that people objected to is that the government seemed to be strongly sticking with their choices. On 02/10, when asked by BBC's Laura Kuenssberg, "are you completely committed to [the cut]?", the prime minister replied with a confident "yes"; only to reverse the decision less than 24 hours later.
These cuts could have facilitated short-term growth but led to immense borrowing, likely ending in an even bigger problem for the UK economy. They were the most significant tax cuts in 50 years since Anthony Barber's 1972 budget, known as the "Barber boom".
Further details from the mini-budget
The last cabinet increased national insurance payments for basic-rate taxpayers by 1.25% - this is being reversed, saving money for basic-rate taxpayers but not impacting those paying a lower rate. The original NI increase was labelled as a health and social care levy and was going towards funding the NHS and social care. The reversal decision means that taxpayers get to keep more of their paychecks, but the NHS will miss out on a potentially vital cash injection to its already-suffering services.
Also, while there may be extra money entering your bank account every month, the likelihood is that there will still be a loss as more is exiting in the form of rising energy bills and mortgage payments.
Liz Truss came out almost a week later to publicly show her support for Kwarteng's mini-budget announcement. She agreed that "controversial, difficult decisions" had been made by the cabinet but insisted that the "right plan" is in place to restore the economy. Truss echoed her chancellor in saying, "a lot of the measures that we've announced won't happen overnight, and we won't see the growth overnight... But what's important is that we're putting this country on a better trajectory for the long term."
All we can do is hope that this is true and that the government's plans will come to fruition rather than throwing the market into even further disarray.
"We're putting this country on a better trajectory for the long term."
The government plans to "deliver higher wages, greater opportunities and crucially, fund public services" by expanding "the supply side of the economy through tax incentives and reform".
They also plan to "lift the cap off bankers' bonuses, so they stay here, pay taxes here."
"We need global banks to create jobs here, invest here, and pay taxes here in London, not in Paris, Frankfurt or NYC."
Kwarteng stated that the bonus cap that previously existed for bankers simply pushed up their basic salary and drove activity outside of Europe - rather than capping total remuneration. As a consequence, they are scrapping it.
Another thing the new government plans to axe is the increase in corporation tax. It will stay at 19% rather than rise to 25%. This benefits small businesses as they will have more money to invest in their businesses.
The government has also said that it is going to establish investment zones, which will be areas where businesses can get tax breaks and other incentives to set up and grow. This could be a good opportunity for small businesses to get a foothold in these areas and to grow their businesses.
The government has also said that it wants to make the UK a more attractive place for foreign investors. This could mean more opportunities for small businesses to form partnerships with foreign companies or to sell their products and services abroad.
The chancellor believes that high tax only seeks to damage Britain's competitiveness.
"[High tax] reduces the incentive to work, to invest and to start a business.
The higher the tax, the more ways people seek to avoid them or work elsewhere to work less... rather than putting their time and effort to more creative and productive ends.
Take the additional income tax, at 45%, it's higher than the headline top rate in G7 countries like the US and Italy... and it is higher even than social democracies like Norway
I'm not going to cut the additional rate of tax today.
I am going to abolish it altogether.
From April 23 we will have a single higher rate of income tax of 40%."
You can read on for more information on Kwarteng's budget and what it means for UK business, or read the full transcript here.
Reaction from the opposition
Unsurprisingly, Labour's reaction to the mini-budget and tax cuts has not been positive. Labour's Rachel Reeves sarcastically thanked Kwarteng for his "comprehensive demolition" of the past 12 Conservative government years.
Labour leader Keir Starmer says Conservatives can never again claim to be a party of fiscal responsibility. He labelled it "the worst possible situation we could find ourselves in."
Speaking to BBC Radio Nottingham, Truss said, "there's plenty of evidence that if you have very high taxes, they lead to lower economic growth."
The government has said that these changes will make Britain "one of the most attractive places in the world to invest, do business and create jobs". But it remains to be seen whether this will happen. This may work, but if the pound continues to plummet and we as a country have to keep borrowing from other countries to keep ourselves afloat - the opposite could be true.
Director of the Institute for Fiscal Studies, Paul Johnson, claimed the tax cuts would have cost £41bn in 2024, and climb to £45bn in 2026.
The government's reasoning behind the changes is that "it will simplify tax. It will make Britain more competitive. It will reward enterprise and work. It will incentivise growth. It will benefit the whole economy and the whole country." They believe that these changes will result in exponential economic growth that will ultimately pay for itself. In order to keep the public's trust, the government will need to show that these outcomes are realistic for them to carry out. There is a possibility that the only thing that happens is an economic crash and an even weaker pound.
Kwarteng defended his announcement, saying he is more focused on long-term economic growth than short-term market decisions. There has been a bit of back and forth over who is responsible for both the original cut and the U-turn, with Kwarteng saying that it had been a discussion between him and the prime minister.
"We talked together, I said this is what I was minded to do and we decided together, we were in agreement
that we wouldn't proceed with the abolition of the rate."
According to the political editor of the Guardian, Pippa Crerar, Truss admitted that the rest of the cabinet were not consulted and making the cuts was solely Kwarteng's decision.
Liz Truss drops Kwasi Kwarteng in it on 45p top tax rate.
"It was a decision that the Chancellor made".
She admits rest of Cabinet wasn't informed in advance.#BBCLauraK
— Pippa Crerar (@PippaCrerar) October 2, 2022
Lending from the International Monetary fund has hit a record high. Economists have warned that the UK government is heading for a bailout from the international lender in order to keep us afloat during these difficult times.
Stamp Duty
"Today's statement is about growth. Homeownership is the most common route for people to own an asset, giving them a stake in the success of our economy and society.
"So to support growth, increase confidence and help families inspiring to own their own homes, I can announce that we are cutting stamp duty."
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Stamp duty is a tax paid on certain property transactions in the UK. It is usually paid by the buyer of the property, and it is payable on properties that are worth more than a certain amount. The amount of stamp duty you have to pay depends on the property's value and whether it is a primary residence or second home.
Kwarteng has reduced the amount that homeowners will pay in stamp duty. The payment threshold now is £250k, rather than the previous £125k. For first-time buyers, the threshold has gone from £300k to £425k. So, if you're buying a house under £425,000 - you are exempt from paying.
You can read more about stamp duty and how to work out how much you'll have to pay on the gov website.
Despite reductions in the above (stamp duty, national insurance and higher-rate tax payments), the economic state of the UK will put many residents under immense pressure. Everything is rising: interest rates, inflation, the general cost of living - but wages are not increasing at the same rate.
Rising mortgage rates
Mortgage rates rise because, as borrowing rates rise for the government, they also rise for mortgage lenders. This rise then gets passed onto you, the payee.
If mortgage rates rise to 6%—as implied by markets' current expectations for Bank Rate—the average household refinancing a 2yr fixed rate mortgage in the first half of 2023 will see *monthly* repayments jump to £1,490, from £863. Many simply won't be able to afford this (1/2) pic.twitter.com/hkoZCcSfjJ
— Samuel Tombs (@samueltombs) September 26, 2022
Energy prices
The rise in energy prices has been on everyone's mind recently, whether it affects you or not.
It has put some small businesses in an impossible position: stay open and struggle with little to no profit, with the majority going on bills; or close down the business and save their money.
Thankfully, SMEs have been thrown a potential lifeline in the form of the energy bill relief scheme from the government. This will aid small businesses in being able to afford their energy bills by cutting them by more than 50%.
For some, this will be a vital lifeline that will allow them to continue trading healthily, but for some, it has come too late.
What's happening to the strength of the pound?
The pound has been volatile recently, and it's hard to predict what will happen in the future.
Once currency falls a little, it's hard to slow it down. For a while, the value of the pound appeared to be on a steep decline.
On 07/09/2022, it fell below the dollar for the first time in almost 50 years. After the queen's passing, it became slightly more robust, rising above again; but quickly declined once more.
On 26/09/2022, likely due to the fallout after the mini-budget, the pound fell to a record low against the dollar once more.
On the flip side, the US dollar grew in strength after hitting a 20-year-high in August.
Some experts speculated that the pound would continue to decline in value, harming small businesses. A weaker pound makes imported goods more expensive, increasing costs for businesses. It can also adversely affect sales as it might be challenging to sell products and services to overseas customers.
On the other hand, some had faith that the pound would rebound and regain some of its lost value. This would be beneficial for small businesses, as it would make imported goods cheaper and help reduce costs all-round.
When the government reversed the proposed tax cut, the pound began to grow a little in strength. You can keep an eye on its activity here.
On 04/10/2022, it rose to the highest level in 2 weeks - from $1.03 to $1.14.
No one can determine for sure what the future of our currency is, but it's something that small businesses should be aware of. Hopefully, it will remain on a steady incline and not cause too many problems for small businesses. But for now, the many fluctuating decisions could mean that the price of importing goods from overseas will increase, making it hard for business owners to obtain the goods they need at a viable price - or at all. Either way, keep an eye on currency markets and try to prepare for whatever happens.
There was the possibility that the Bank of England would be forced into implementing an emergency interest rate rise, but this has been ruled out.
Liz Truss has only been prime minister for just over a month, and it hasn't been a smooth ride. Shortly after these announcements were made, letters of no confidence from her party began streaming in.
Polls have shown that a Labour government could be on the cards, but it's unlikely that this would happen before the next scheduled election, which is expected to be in early 2025.
Confidence in the government is fluctuating. Half of the party are rallying behind the prime minister and the chancellor, trying to convince their fellow MPs to do the same; and half are supporting a plan for new leaders in Rishi Sunak and Penny Mordaunt.
The government consistently appeared to be unmoving and confident that they could deliver the growth plan that they proposed. However, they came up against doubts from all sides.
When asked yesterday (13/10) whether he and Truss would still be in their positions next week, Kwarteng vowed, "Absolutely 100%, I'm not going anywhere." (Watch below)
Truss repeatedly claimed that she supports her chancellor and she has confidence in him, but on 14/10/2022 - just 3 weeks after his controversial mini-budget - he flew back from Washington for urgent talks. Many newspapers are reporting that he will lose his role as the chancellor. Number 10 are not commenting on this claim.
What's next?
Kwarteng was set to announce a "medium-term fiscal plan".
Originally, the fiscal plan was planned for the new year, but was brought forward to 23/11/2022 due to criticism.
On 04/10/2022, Kwarteng himself maintained that it will remain in November.
GB News Exclusive: Chancellor @KwasiKwarteng tells @LiamHalligan his Medium-Term Fiscal Plan will be published on November 23rd as planned and not bought forward. pic.twitter.com/BmldaoknKh
— GB News (@GBNEWS) October 4, 2022
On 05/10/2022, the BBC reported that the plan "really will be published early" - as confirmed by the Treasury.
On 10/10/2022, it was confirmed by Kwarteng that it has been brought forward to 31/10/2022 - almost a month earlier than planned.
The plan will give Kwarteng the opportunity to explain how he plans to deliver the planned policies - such as the 2.5% annual growth target.
This comes after pressure from MPs such as Keir Starmer. He said, "They've got to review the plans they put out on [23/10/2022]. They've got to do it urgently, in my view."
Ian Forsyth - Getty Images
The shadow Treasury spokesperson, Sarah Olney, said: "Truss and Kwarteng been in government for three weeks, and the IMF has already been forced to issue a statement on their reckless economic policy.
"Both are totally blinded by ideology, which is making millions across the UK suffer. We need to recall parliament to fix this mess."
As of 28/09/2022, the Bank of England had to intervene, saying, "Were dysfunction in this market to continue or worsen, there would be a material risk to UK financial stability...The Bank of England stands ready to restore market functioning."
The Office for Budget Responsibility (OBR) planned to meet to discuss the developments with parliament and announce their verdict on 07/10/2022. It is thought that Kwarteng will keep this a secret until he announces his fiscal plan.
On 11/10/2022, government borrowing costs rose again to almost 5%. This is the rate at which the Bank of England last had to intervene on 28/10.
Watch this video from BBC News for a review of Truss' recent radio interviews (Video: BBC News)
So what does the future hold for small businesses in the UK?
The answer, unfortunately, is quite uncertain.
The pandemic has left many businesses struggling to stay afloat, and the economy will take some time to recover. That being said, there are a few things that could help small businesses in the UK in the coming years.
A vital lifeline for the survival of small businesses is government support. The government did provide financial assistance during the pandemic, which should carry on into the future. Government intervention is necessary to help businesses stay afloat and continue to operate until the economy recovers.
Another thing that could help is if consumers begin to spend more money. This will be difficult to achieve, as many people are still struggling financially due to the pandemic. However, if more people start spending money, it will boost the economy and help small businesses recover.
Many businesses have started to absorb price increases rather than pass them on to their customers. Previously, they could raise their prices, but now everyone is facing a battle with their finances. Hopefully, when the Bank of England step in to mitigate market conditions, things will stabilise and people will be protected across the board.
The future of small business in the UK is uncertain, but there are a few things that could help them recover from the pandemic. Continued government support and increased consumer spending could make a big difference. Only time will tell what the future holds for small businesses in the UK.
In the time elapsed since the mini-budget was announced, there have been endless developments and opinions being offered up. We will keep an eye out for this and do our best to provide you with the most up-to-date news as and when it happens.
