The 45p income tax rate paid by Britain’s highest earners will be axed, in the biggest surprise in Kwasi Kwarteng’s mini-budget.
The chancellor also accelerated a planned 1p cut in the basic rate – from 20p to 19p – which will now come into force next April, instead of in 2024.
Mr Kwarteng claimed abolishing the 45p rate for people earning more than £150,000, already cut from 50p by George Osborne a decade ago, “will simplify the tax system and make Britain more competitive”.
However, the move will fuel criticism that the mini-budget is handing rewards to the rich at the expense of the least well-off – in what has been dubbed a return to 1980s-style “trickle-down economics”.
The chancellor also confirmed he is axeing the cap on bankers’ bonuses, while reversing the increase in National Insurance contributions will also overwhelmingly benefit the wealthy.
Rachel Reeves, Labour’s shadow chancellor, protested it was “not a plan for growth” but “a plan to reward the already wealthy”.
But Chris Philp, the Treasury chief secretary, called criticism that the rich will benefit most from the huge tax cuts the “politics of envy”.
The pound dropped to a fresh 37-year-low against the dollar as the “growth plan” was unveiled, and there was another steep rise in public borrowing costs in evidence of market nervousness.
Mel Stride, the Tory chair of the Commons treasury committee, attacked Mr Kwarteng for refusing to allow the independent Office for Budget Responsibility to analyse the package.
“There is a vast void at the centre of the announcements that have been made,” he told the chancellor – pointing to the markets “getting twitchy”.
Mr Kwarteng also axed the planned increase in corporation tax on big business profits, claiming the move can help boost wages and jobs.
The levy was due to rise from 19 per cent to 25 per cent next April – after Rishi Sunak accepted the low rate had failed to boost investment – but will now stay at the lowest rate in the G20.
The Treasury book showed the extraordinary scale of the tax cuts announced will cost nearly the exchequer £27bn in 2023-24 – rising to £45bn by 2026-27.
The threshold for paying stamp duty has been raised to £250,000 – or £425,000 for first-time buyers – in another move that will disproportionately benefit the wealthy.
Paul Johnson, the head of the Institute for Fiscal Studies, raised fears of a repeat of an infamous dash for growth by the Conservative government of the early 1970s, which “ended in disaster”.
“This is biggest tax cutting event since 1972. Barber’s “dash for growth” then ended in disaster. That Budget is now known as the worst of modern times. Genuinely, I hope this one works very much better,” he tweeted.
And Torsten Bell, head of the Resolution Foundation thinktank, warned of “public finances being set on an unsustainable footing”, saying of Mr Kwarteng: “Gambles on growth, which is in Putin’s hands rather than ours in the short term.”
In the Commons, Ms Reeves attacked the “outdated ideology that says if we simply reward those who are already wealthy, the whole of society will benefit”, adding: “They have decided to replace levelling up with trickle down.”
She said: “When the prime minister says she wants to break free from the past, what she really means to say is that she wants to break free from her own failed record, because where have the last 12 years left us?
“Lower growth, lower investment, lower productivity and today we learn that we have the lowest consumer confidence since records began.”
But Mr Kwarteng insisted: “For too long in this country, we have indulged in a fight over redistribution. Now, we need to focus on growth, not just how we tax and spend.
“We have cut stamp duty, we have allowed businesses to keep more of their own money to invest, to innovate, and to grow, we have cut income tax and national insurance for millions of workers.
“We are securing our place in a fiercely competitive global economy with lower rates of corporation tax and lower rates of personal tax.”