What Jeremy Hunt as Chancellor means for your finances

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Personal tax

The plan to cut the basic rate of income tax from 20p to 19p in the pound from next April is still in place. Ms Truss said Mr Hunt would present the government’s fiscal event at the end of the month.

This summer Jeremy Hunt told The Telegraph during the Tory premiership race: “I would like to see income tax cut, but it has to be done in a sustainable way.

“This cannot be an election bribe and depends on growth. What you need is a lifetime income tax cut, not Christmas. That means you start by saying we’re going to grow the economy, and then you put yourself in position.”

Mr Hunt also said he would keep the rise in National Insurance, saying the NHS “needs the money”.
The Prime Minister is also expected to stick to her plans to cut National Insurance.

However, Chris Etherington of tax specialist RSM said Mr Hunt could depart from this policy as the new chancellor’s priority would be to balance the books.

“Income tax cuts and NI tax cuts are the most expensive cuts I could promise the country,” he said.

“Instead, I might consider passing the savings on to lower income earners – those who are suffering the most from the cost of living crisis – by increasing personal relief.

“This band has been frozen since the previous administration, meaning a lot of people were pushed into higher tax brackets and paid more income tax. This would be cheaper than income tax cuts or NO NI and would help those most in need.”

Mortgages

A turnaround in corporate tax should end the mortgage market turmoil of the past two weeks, but it won’t be enough to prevent big house prices are falling, analysts have warned.

Lucian Cook of estate agents Savills said the turnaround in corporation tax should encourage lenders to restart mortgage business and cut interest rates.

He said: “I imagine the OBR will find it easier to balance the books, making the UK more secure. Gilt yields will fall, the pound will strengthen and inflation forecasts will moderate. This will make everything less risky and reduce pressures to the cost of the mortgage debt.”

Mortgage rates, which have jumped the fastest on record since the mini-budget, should stabilize and even decline, Cook said.

But the turnaround will not be enough to save house prices. “I expect the mortgage market to moderate somewhat in terms of availability and costs. But that doesn’t eliminate inflationary pressures, it just moderates them,” Mr Cook said.

“We will still be in an inflationary economy. There will still be an increase in bank interest rates. We still have a period of sobriety in the housing market.”

Andrew Wishart of research group Capital Economics said expectations of market interest rates had already fallen in anticipation of a turnaround and that mortgage rates should fall from the 6 percent level seen in recent days.

Still, he added: “The loss of credibility is likely to prevent interest rates from fully reversing the rises of recent weeks. The trigger for the drop in housing prices has been pulled.”

Capital Economics’ house price forecasts already included mortgage rates falling back to 4 percent. Mr Wishart added: “So the 12% fall in house prices that we are forecasting would remain even if mortgage rates fell back to that level.”

Buy to Let landlords

Landlords with large portfolios who own properties in limited companies will face higher taxes as a result of Truss’ turn on corporation tax, with the rate now set to rise from 19% to 25%.

However, under plans unveiled by then chancellor Rishi Sunak, this full growth would only apply to the biggest investors with profits above £250,000. Businesses with profits below £50,000 will not see an increase, businesses with profits between £50,000 and £250,000 will be able to claim marginal relief.

The blow to buying with the intention of showing will therefore be relatively small – but the benefits will far outweigh it. As with the home mortgage market, interest rates on home equity loans are likely to stabilize or decline if the turnaround can ease financial turmoil and soften inflation forecasts.

Savings

Experts have warned that if the new chancellor pursues an economic policy seen as less inflationary, banks could start making their best buys and start offering lower interest rates on their savings deals.

Anna Bowes, of Savings Champion, said: “If the new chancellor works to settle the markets, the rise in fixed rates we’ve seen recently could peak and potentially start falling again.”

Savings rates on fixed bonds have risen since the mini-budget as the government’s economic policy – widely seen as inflationary – has raised expectations that the Bank of England will be forced to raise Bank Rate to as high as 5.75%.

According to analyst Savings Champion, the average interest rate on a one-year fixed bond is currently 2.54 percent. At the beginning of the year, according to another provider, Moneyfacts, it was 0.82 percent.

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