Kwasi Kwarteng rolled the dice on the country’s future today by unveiling an extraordinary series of tax cuts in a bid to end Britain’s ‘cycle of stagnation’.
In a dramatic ’emergency budget’, the chancellor abolished the highest tax rate for high earners and brought forward a reduction of 1 per cent. in the basic income tax for next April.
Sir. Kwarteng reversed the National Insurance increase, as well as scrapping a huge planned rise in corporation tax from 19p to 25p and caps on City bonuses.
Stamp duty will be dropped for values up to £250,000, with first-time buyers exempted for up to £425,000 – taking a total of 200,000 people out of the system.
Beer, wine and cider tax increases are being canceled – and in a bid to boost tourism, overseas visitors will be able to shop VAT-free.
Briefly: What did the chancellor announce?
Abolished the 45p tax rate paid by those earning more than £150,000 from April next year
1p reduction to the basic rate of income tax brought forward by one year to April 2023
No stamp duty on property purchases up to £250,000 and up to £425,000 for first time buyers
Scrapping the banks’ bonus cap in an attempt to boost the city
Reintroduction of VAT-free shopping for overseas tourists
Businesses based in 38 new ‘investment zones’ will see tax cuts and benefit from scrapping of planning rules
Alcohol tax frozen from next year, estimated to be worth 7p on a pint of beer and 38p on a bottle of wine
The increase in national insurance contributions will be canceled from 6 November
Cancellation of next year’s planned increase in corporation tax, so that the tax remains at 19 per cent.
Dozens of low-tax and low-regulation ‘Investment Zones’ are being created across the country, where new startups benefit from breaks such as exemptions from business rates.
Sir. Kwarteng stressed that there was a long-term challenge in the UK that needed to be tackled.
“Growth is not as high as it should be,” he said. ‘We are determined to break that cycle. We need a new approach for a new era.’
The barrage is technically not a budget but a ‘financial event’ – meaning it will controversially not be accompanied by any of the usual independent costs from the OBR.
Sir. Kwarteng started by hailing the freezing of energy bills at the typical £2,500 for households, saying the government was determined to help with the cost of living crisis – although he admitted the price tag will be £60bn just for the first one. six months.
And economists have expressed alarm at the massive borrowing that will be needed to cover the hole in the government’s books.
The two-year freeze on energy bills for households and businesses announced earlier this month could cost more than £150bn on its own, while the tax cuts could add another £50bn to the tab.
The respected IFS think tank suggested it would be the biggest tax hike since Nigel Lawson’s 1988 Budget, when Mrs Truss’s heroine Margaret Thatcher was prime minister.
The dangers of raising Britain’s £2.4 trillion debt mountain as the Ukraine crisis sends inflation skyrocketing has been underlined by the continued fall in the pound against the US dollar, which hit a fresh 37-year low of just under 1.11 this morning.
Markets have pushed government borrowing rates up to the highest level in 11 years.
In August and September, the year-to-date 10-year yield on government gilts saw the biggest increase since October and November 1979, underscoring the markets’ nervousness about the situation.
But Ms Truss and Mr Kwarteng argue that increased economic activity could make up the difference, pointing to decades of lackluster productivity improvements.
The Bank of England pushed interest rates up by 0.5 percentage points to 2.5 percent yesterday, the highest level since 2008. But it surprised many by stopping short of a major increase, suggesting UK plc is already in recession.
Chancellor Kwasi Kwarteng presents an ’emergency budget’ to the Commons with a series of dramatic measures designed to boost growth
Sir. Kwarteng enters Downing Street by the back entrance this morning ahead of his ’emergency budget’
Liz Truss leaves Downing Street for the Commons on what could prove to be a defining day for her premiership
The Bank of England raised interest rates by 0.5 percentage points yesterday in an attempt to contain rampant inflation
Before the Commons statement this morning, the pound had hit another 37-year low against the US dollar
The interest bill on Britain’s £2.4 trillion debt mountain hit £8.2bn last month, the highest figure for August since records began in 1997
Sir. Kwarteng told MPs: ‘Growth is not as high as it needs to be, which has made it harder to pay for public services, which requires taxes to rise.
“This cycle of stagnation has led to the tax burden expected to reach the highest levels since the late 1940s. We are determined to break that cycle. We need a new approach for a new era focused on growth.
‘This is how we will deliver higher wages, greater opportunities and sufficient revenue to fund our public services, now and in the future. This is how we will compete successfully with dynamic economies around the world. This is how we will turn the vicious circle of stagnation into a virtuous circle of growth. We will be bold and unabashed in pursuing growth – even where it means making tough decisions. Work on delivery begins today.’
Sent out to tour studios this morning, Leveling Up secretary Simon Clarke rejected the suggestion the economic plan was a ‘game’.
He called it a ‘game-changing financial statement’ and said the measures were designed to return Britain to the level of growth seen before the 2008 financial crash.
He told Sky News that Mr Kwarteng would tackle what is a record tax burden on families and businesses, which clearly reflects the fact that we have been through some extraordinarily difficult years but that we are setting out a fundamentally new approach to growth to ensure that we win the argument that a more successful corporate economy is good for the whole of this country’.
Today’s fiscal statement had been billed as a ‘mini-budget’ but yesterday the Institute for Fiscal Studies said it would represent the biggest tax handout in three decades.
Then-Chancellor Lord Lawson delighted Conservative MPs in 1988 when he used his Budget to cut income tax, cut the basic rate by 2p in the pound and scrap all higher rates above 40 per cent.
IFS director Paul Johnson said: “We actually think this will be the biggest tax cut event since Nigel Lawson’s budget in 1988. So it may not be a budget, but in terms of tax cuts it will be bigger than any budget for more than 30 years.’
Johnson said that with £30bn of tax cuts, the government’s deficit could hit around £100bn by 2025, which would ‘put the debt on an unsustainable path’.
A big increase in economic growth would make things easier, but that was not guaranteed, he added.
The IFS also warned that most households will be worse off this year despite a massive package of government support to tackle the cost of living crisis. It reckons a median income will be £500 worse off in real terms than they were last year – a cut of around 3 per cent in their income. High earners will be £1,000 worse off.
“I’m afraid the energy price shock has made us poorer and we’re going to be worse off,” Johnson said. ‘Government can spread the pain over time and between people, but ultimately it won’t be able to conjure it up.’
The chancellor will also announce that officials are in talks with 38 council and mayoral areas to set up ‘investment zones’. Each zone will offer tax breaks to businesses to help them create jobs and improve productivity.
The areas will have less strict planning rules, and there will be reforms to the environmental rules to make it easier to build more houses and commercial properties.
Sir. Kwarteng will also announce legislation to speed up the delivery of around 100 major infrastructure projects, including transport, energy and digital schemes.
This could include scrapping rules that protect rare and endangered species. The chancellor will also use his ‘financial event’ to set out details of how the state will fund an energy price cap announced by the prime minister earlier this month.
Downing Street insisted Liz Truss remained committed to the 2019 Tory election manifesto, despite her sharp break with Boris Johnson’s administration’s economic policies.
She told business leaders in New York this week that she wanted ‘lower, simpler taxes in the UK to encourage investment, to get more businesses started in the UK’.
She is said to believe that a reduction in stamp duty – paid on the purchase of a property worth more than £125,000 – would drive growth by encouraging more people to move, as well as helping first-time buyers.
The Prime Minister said on Wednesday: ‘We will not raise corporation tax as planned. We will reverse the National Insurance increases that took place earlier this year. And the chancellor will announce various other simplification measures.’
Commended: Nigel Lawson with his budget red field. The former chancellor is pictured outside 11 Downing Street. Then chancellor Lord Lawson used his budget to cut income tax, cut the basic rate by 2p in the pound and scrapped all higher rates above 40 per cent in 1988
The bank reflected on a slew of bad data recently, including GDP numbers for July and retail sales for August