The government British led by the new premier, Liz Truss, announced a comprehensive tax reform and investment incentives, with the aim of strengthening the country’s economic growth.
Speaking to the House of Commonsthe Minister of Finance, Quasi Quarteng he said the government wants “A new approach for a new era focused on growth” and targets an economic growth rate of 2,5% in the medium term.“We believe that high taxation reduces incentives to work, discourages investment and hinders businesses”, Kwarteng said.
According to government estimates tax cuts will amount to £ 45 billion by 2026-27. “Half a century has passed since we have seen the tax cuts announced on this scale “he has declared Paul Johnsondirector of the Institute for Fiscal Studies.
Despite containing extensive reforms, the reform package announced earlier today is not described by the government as an official budget as it was not accompanied by the UK’s usual Bureau of Statistics economic forecasts.
Some critics of the Truss administration’s proposals warn that the combination of large tax cuts and the government’s plan to protect households and businesses from soaring energy prices coupled with rate hikes Bank of England they will see the level of public debt increase significantly. The energy support package alone should cost more than 100 milliard poundsand ($ 111 billion) over two years.
Here’s what the tax reform provides
- Cancellation of the expected increase incorporation tax at 25%, keeping it at 19%, the lowest rate of the G-20.
- A reversal of the recent increase dell’1,25% of social security contributions: an income tax.
- A reduction in the basic income tax rate from 20 to 19%.
- Elimination of the maximum tax rate 45% paid on income above £ 150.000 ($ 166.770)with the maximum rate that will be that ofl 40%.
- Significant cuts in stamp duty, which is a tax paid on home purchases.
- A network of ‘investment zones’ in the UK where businesses will be offered tax cuts, liberalized planning rules and a reduction in regulatory barriers.
- A refund system for sales taxes paid by tourists.
- Scrapping of an increase in tax rates on various spirits.
- Scrapping of a ceiling on bankers’ bonuses.
Unions and the Labor opposition have said the measures will benefit the rich and will do little to help those with moderate incomes and are suffering the most from inflationary pressures.
The Labor and Opposition Party has labeled the reform a “casino economy.” As Chancellor of the Exchequer, Kwarteng rejected the criticism, saying that “For too long in this country we have indulged in a struggle for redistribution. We do not apologize for managing the economy in a way that increases prosperity and the standard of living.
Our goal is to make Britain more competitive globally ”.
The pound falls below $ 1.11, the gilt yield rises
The pound tumbles below $ 1.11 for the first time since 1985, down 2%, while the 10-year gilt yield rises to 3.76%, up 7.84%. The UK benchmark index, the Ftse 100, marks -3% at 21,132 points.
After the announcement of the new program, we saw a sharp rise in British government bond yields and a sharp depreciation of the national currency, especially against the dollar. We believe that the choice of the new Truss government to carry out a maneuver so strongly in debt in a period of high inflation with the Bank of England that it is raising interest rates and has started quantitative tightening (i.e. it sells the government bonds in its portfolio ) is undoubtedly a very risky policy that will cause, for a long time, very strong turbulence in the financial markets of the United Kingdom. He has declared Philip DiodovichSenior Market Strategist di IG Group.
Just yesterday, the Bank of England announced yet another 50bp rate hike to combat inflation at the highest levels in decades. Additionally, the Bank of England, headed by Andrew Baily he said the UK economy has already entered a recession since the third quarter. The UK economy contracted 0.1% in the second quarter due to a squeeze in real incomes.