From April of next year, the majority of taxpayers will pay one penny less in income tax per pound.
The reduction, which affects those earning between £12,571 and £50,270, comes a year earlier than anticipated.
In an unexpected move, the highest tax bracket of 45% for individuals earning above £150,000 per year has also been eliminated.
During his mini-budget, the chancellor stated that high tax rates “harm Britain’s competitiveness” and diminish incentives for new enterprises, adding that tax cuts are “essential to unlocking the economic conundrum.”
Mr. Kwarteng stated that eliminating the 45 percent tax rate will also “encourage enterprise and growth.”
People earning more than £150,000 per year will now pay the tax rate applicable to those earning more than £50,270 per year, which is 40%.
However, the adjustment will not apply in Scotland, which has separate income tax brackets. Those who earn more than £150,000 per year in Scotland currently pay a tax rate of 46%. The reduction of the basic rate of tax to 19 pence per pound is likewise not applicable in Scotland.
Rachel McEleney, associate tax director at the consulting firm Deloitte, stated that under the new approach, higher rate taxpayers will save £377 in comparison to this year.
Ms. McEleney stated that a non-Scottish resident with annual earnings of £200,000 will see their income tax bill decrease from £74,960 in the current fiscal year to £72,083 in the following year, resulting in a tax savings of $2,877.
“This is a budget that deliberately ignores families facing a cost-of-living emergency and instead targets the wealthiest,” she stated.
Mark Littlewood, director general of the Institute of Economic Affairs, a free market think tank, stated that the elimination of the highest rate of income tax would result in higher incomes devoting “more time to enhancing their productivity.”
“The increased rate of income tax (45p) was always the result of political performance as opposed to smart economics,” he stated. The 1p reduction in the basic income tax rate will put more money in people’s pockets.
The 2010 introduction of the elimination of the highest tax bracket surprised many experts.
Michael Brown, head of market intelligence at the banking firm Caxton, stated, “It is a rabbit out of the hat…that not only is the additional rate going to be fully eliminated, but also the cuts to the basic rate of income tax are going to be brought forward by a year.”