British Chancellor of the Exchequer Kwasi Kwarteng (Kwasi Kwarteng, Guan Haoting) announced the country’s most aggressive tax cuts in nearly 50 years, calling it a “new era” for the British economy.
Plans include scrapping the top income tax rate, which applies only to high-income earners, and lowering income tax and stamp duty on home ownership, while previous plans to raise corporate income tax will also be put on hold.
Kwarten said the UK needs a major policy shift to stimulate economic growth.
But the opposition Labour Party said the biggest tax cut since the 1970s would not solve Britain’s current cost of living crisis and was a “plan to reward the rich”.
But Kwarten insists his tax cut plan is “fair.”
The tax cuts came as the Bank of England warned that Britain may already be in recession.
Sterling slumped to a fresh 37-year low against the dollar as the Chancellor of the Exchequer made a speech announcing the package.
Kwarten, who abandoned the economic policies of former Prime Minister Boris Johnson, has scrapped plans to raise taxes to pay for public services, aiming to stimulate economic growth.
In unveiling the plan, known as a “mini-budget”, in the House of Commons, Kwarten said high taxes “undermined Britain’s competitiveness”, reducing incentives for jobs and business investment.
He announced that the basic income tax would be cut by a percentage point in April to 19% – a year earlier than originally planned.
He also announced that the top income tax rate will be cut to 40% from 45%, meaning that from April, the UK will have only one higher rate.
In an unexpected measure, the top tax rate of 45% for those earning more than £150,000 a year will be abolished.
Income tax cuts, and a pullback in National Insurance, will allow higher income earners to save more.
- Stamp duty threshold for people in England and Northern Ireland to be raised to £250,000
- The threshold for first-time home buyers will be raised to £425,000, while they are able to claim tax relief for the value of the property
It will also be raised from £500,000 to £625,000
- Planned tax hikes on beer, cider, wine and distilled spirits to be scrapped
- Bankers’ bonus cap to be lifted
- New investment zones will be established where businesses will enjoy tax cuts and relaxation of planning restrictions to encourage real estate construction
Kwarten made good on his promise to pull back on Johnson’s rise in National Insurance payments.
He also confirmed that plans to raise corporate income tax from 19% to 25% would also be scrapped.
The tax cuts announced by Kwarten are expected to total nearly £45bn in spending by 2027. The chancellor said this would “turn a vicious circle of stagnation into a virtuous circle of growth”.
“We need a new approach in a new era, focused on growth,” he said.
According to the British Treasury, government debt will rise by 72 billion pounds after the plan is announced.
Changes to income tax do not apply to Scotland, but corporate tax and National Insurance cuts are across the UK.
“The Big Gamble”
Paul Johnson, director of the independent Institute for Fiscal Studies, said the package amounted to the largest tax cut since the 1972 Budget, a cut that was 50% higher than expected.
To achieve these measures, the UK could borrow £120bn over three years, he said.
Paul Johnson also said the plan was a “big gamble”, with money being poured into an economy where inflation was still high. However, he said these were “manageable” if economic growth “really could keep up”.
Analysis – BBC political affairs correspondent Nick Eardley
This is not a mini budget. This is a radical tax cut economic intervention and a major program adjustment.
Boris Johnton’s tax plan has been dumped. Many families will save some money, but some of the biggest tax breaks will go to those with the highest wages.
And that will cost a lot of money.
In the Chancellor’s abacus, it’s worth it. People need help paying their bills, and tax cuts will spur growth. If you boost the economy, there will be more taxes, and then that will help pay down the debt in the medium term.
But many doubt it will work.
Senior Conservatives have been warning for months that the strategy is wrong and will leave future generations in debt.
Opposition parties argue that the government’s priority-setting mistakes in cutting taxes for the wealthy should be financed from windfall taxes on energy company profits.
The Treasury Department has not said when it expects to hit the economic growth target.
But the chancellor is determined to press ahead with the radical policy shift. The big question is: will it work?
Labour described Kwarten’s speech as “an admission of 12 years of economic failure”.
“The Conservatives can’t solve the cost of living crisis, the Tories are the cost of living crisis, and our country can’t take them anymore,” Shadow Chancellor Rachel Reeves said.
“The chancellor showed today who his priorities are. It’s not a growth plan, it’s a plan to reward the rich. It’s a return to the trickle-down economy of the past, a step backwards for the future, Not a brave new era.”
Liberal Democrat leader Ed Davey said: “This is a billionaire budget that shows the Conservative Party is completely out of touch with families struggling to pay their bills.”
Recession is not ‘inevitable’
When the tax cuts were announced, financial markets reacted immediately, with both the pound and the UK stock market falling.
However, Kwarten said his tax cuts were “fair” for all income brackets.
In an interview with the BBC’s political affairs editor Chris Mason, the chancellor said: “I don’t think it’s a gamble at all.”
“In my opinion, sticking to the original line is a gamble.”
He insisted that it would be riskier not to cut taxes and continue in the direction of former Prime Minister Boris Johnson.
“So what we have to do is restart, reconsider,” Kwarten said.
Responding to Labour’s criticism, he said the “mini-budget” was not an admission of failure and that the Bank of England’s forecast recession was “not inevitable”.
But, he said: “We also acknowledge that we can do better.”
He said tax cuts, scrapping plans to boost National Insurance and support for household energy bills would “help the most vulnerable in society get through a tough time”.
Asked if the U.K. economy was in recession, Kwarten said that despite the Bank of England’s description, he believed that even if there was a recession, it would be a small one, and he hoped “we will bounce back and grow”.
When pressed, he declined to confirm whether the UK economy was in recession.
annual economic forecast
The package also includes details of some of the government’s plans to cap household and business energy bills.
Costs in these budgets are “particularly uncertain” because of volatile energy prices, but at near-term prices, the package is expected to total around $600 over six months from October, Kwarten said. around £100 million.
“We expect spending to fall as new long-term energy contracts are negotiated with suppliers,” he said.
The government usually publishes independent forecasts to reflect the economic impact of large tax adjustments, but Kwarten chose not to do so because his speech is not procedurally a budget.
But Kwarten promised that the Office for Budget Responsibility would release a full economic forecast by the end of the year, with a second one in the new year.
The sharp rise in Treasuries comes at a time when inflation is at a 40-year high, increasing interest payments.
On Thursday, the Bank of England raised interest rates to 2.25% from 1.75% – the most in 14 years – in an effort to cool prices.