New chancellor of the exchequer Kwasi Kwarteng will deliver a mini-budget this Friday, where he reportedly intends to set an official target of raising real GDP growth to 2.5% a year among a small number of other policy tweaks or reversals.
This emergency budget is also being billed as where Kwarteng and new prime minister Liz Truss will unveil their main weapons to supposedly stimulate this growth and to ease the cost-of-living squeeze: tax cuts for both consumers and businesses.
There have been whispers of reversing the planned hike to national insurance that came into effect in April as well as the increase of corporation tax from 19% to 25% next April.
Scrapping the NI uplift could result in an annual saving of under £100 for someone earning £20,000, rising to £468 for someone earning £50,000.
Another possibility is that the Chancellor could also bring forward the 1p income tax cut that was earmarked by his predecessor, Rishi Sunak, for 2024, or raise the personal allowance.
The income tax change would amount to tax savings of £74 for workers earning £20,000, £174 for someone earning £30,000, £374 for someone with a £50,000 pay packet, or £874 for employees with an income of £100,000.
Total savings from adjusting the allowance, including a rise in higher rate income tax threshold to £80,000 would vary from £167 for someone earnings £20,000 up to £7,463 if you earn £80,000.
But with consultation on the draft finance bill only closing a couple of weeks ago, measures needing imminent legislation may be few and far between in the statement, said Chris Sanger, head of tax policy at EY.
Instead, he said we "should expect a statement of intent for policy, rather than detailed announcement of change".
“It’s likely that we’ll see a number of tax cuts and threshold manoeuvrings, aimed at both easing the burden on taxpayers and inviting investment and growth from business."
Kwarteng will need to deliver on some of the promises made by the new PM during her leadership race, such as the national insurance reversal and abolishing the introduction of the health and social care levy.
Making these changes would provide some savings for both employees and employers, "but it remains to be seen how quickly government can act here", said Tom Evennett, EY’s head of private client services.
As the 1.25 percentage point NI increase is already in effect, he said it would take time for employers and payroll providers to implement change, which means we may see a promise to reverse the rise from the first of January rather than immediately.
And with the levy legislated to come into effect in April the government may announce its intention to abolish the introduction of the levy this week, with legislation coming in the New Year, he added.
Ending the four-year freeze on income tax thresholds, which was introduced to pay for debts accrued from pandemic measures, could offer "instant relief" for households and wouldn’t require immediate legislation, as it could be included in the upcoming finance bill, Evennett said.
Movements in the pound suggest the government has a "clear problem", said analysts Rabobank, in that their growth aim "has been met with a wall of scepticism".
"Not only do investors view the government’s chances of success in achieving this target as unlikely, but many commentators are also concerned that the new Tory cabinet’s desire to lower taxation is taking unnecessary chances with UK public finances."
Part of the aim of this budget will be to signal intent, in terms of spurring business growth and attract inward investment, said Sanger.
“During the leadership race, the Prime Minister promised no new taxes and this event is likely to live up to that. Whether they’ll be retained long term remains to be seen and the marker of success will be how the market responds. If these cuts do spur a significant level of investment, it will be difficult for any government of any political persuasion to justify a reversal," he said.
“Can the Prime Minister retain her promise of no new cuts for the foreseeable future? If there is a ‘full’ budget later this year or in spring, we may see some tightening of corporate loopholes that the PM mentioned before her selection and a response to the online sales tax consultation, which closed earlier this year. However, these will likely be framed as enhancing existing tax frameworks, rather than the introduction of new policy.”