Britain’s new chancellor Kwasi Kwarteng has delivered a “mini-Budget” to Parliament, an emergency statement laying out the new Liz Truss administration’s tax-slashing agenda.
Ms Truss regards cutting tax as the key to righting the UK economy, returning it to growth and taming inflation, currently at a 40-year-high of 9.9 per cent, but the approach has been bitterly discredited by her critics.
Speaking to the House of Commons on Friday morning, Mr Kwarteng reassured the public and British businesses that “help is coming” with their energy bills, alluding to Ms Truss’s earlier move to freeze Ofgem’s energy price cap at £2,500 per year for two years, a policy he revealed would cost the government £60bn in its first six months.
Here is what else the Treasury chief had to say, as he claimed that the UK had “too many barriers for enterprise” in play, which he hoped to remove in order to drive the economy back to growth.
45p income tax rate axed
The biggest surprise in Mr Kwarteng’s mini-Budget was his announcement that the 45p income tax rate paid by Britain’s highest earners will be axed.
The chancellor also accelerated a planned 1p cut in the basic rate – from 20p to 19p – which will now come into force next April.
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”.
Cap on bankers’ bonuses scrapped
The threshold limiting bankers’ bonuses to 200 per cent of their annual salary was also dropped by the new chancellor.
The EU-wide cap was imposed in 2014 to discourage the type of profit-chasing that some critics said triggered the financial crash of 2008.
It limited annual bonuses to 100 per cent of salary – or 200 per cent if shareholders approved – in order to reduce incentives rewarding risk-taking.
But Mr Kwarteng said its impact had never capped total remuneration, as banks had simply shifted payments from bonuses to salary.
“The strong UK economy has always depended on a strong financial services sector,” he told MPs. “We need global banks to create jobs here, invest here and pay taxes here in London, not in Paris, not in Frankfurt, not in New York.”
The chancellor also pledged to “set out an ambitious package of regulatory reforms for the industry later in the autumn”.
Corporation tax cut
The planned increase in corporation tax on big business profits greenlit under Mr Kwarteng’s predecessor, Rishi Sunak, will also be axed. Mr Kwarteng claimed the move will help to boost both wages and jobs.
The levy was due to rise from 19 per cent to 25 per cent next April – after Mr Sunak accepted that the low rate had failed to boost investment – but will now stay at the lowest rate in the G20, according to Mr Kwarteng.
Stamp duty cut
Mr Kwarteng revised the regulations on the tax homebuyers in England and Northern Ireland pay when they acquire a new property so that nothing will now be owed on the first £250,000, up from the previous £125,000 (or £425,000 for first-time buyers, up from £300,000).
The chancellor said this would mean saving 200,000 people from owing stamp duty and that: “Homeownership is the most common route for people to own an asset, giving them a stake in the success of our economy and society.”
“We’re going to increase the value of the property on which first-time buyers can claim relief, from £500,000 to £625,000,” he added.
Mr Sunak introduced a similar holiday during the coronavirus pandemic that was repeatedly extended and only came to an end in England last September.
National Insurance rise scrapped
As trailed in advance, Mr Kwarteng confirmed that the planned 1.25 per cent increase in National Insurance contributions waved through by Mr Sunak would be cancelled from “the earliest possible moment”, meaning 6 November.
The Treasury said on Thursday the change would save nearly 28 million people an average of £330 per year.
The health and social care levy introduced by Boris Johnson’s government will meet the same fate, the chancellor told MPs.
Alcohol duty rise axed
Mr Kwarteng announced that planned alcohol tax increases would be cancelled.
“Our drive to modernise also extends to alcohol duties. I have listened to industry concerns about the ongoing reforms. I will therefore introduce an 18-month transitional measure for wine duty,” the chancellor said.
“I will also extend draught relief to cover smaller kegs of 20 litres and above, to help smaller breweries. And, at this difficult time, we are not going to let alcohol duty rates rise in line with the RPI [Retail Price Index].”
“So I can announce that the planned increases in the duty rates for beer, for cider, for wine, and for spirits will all be cancelled.”
In a related move, he announced that VAT-free shopping would be introduced for overseas visitors.
Other reforms
Mr Kwarteng claimed his mini-Budget would save the country £45bn a year and promised more detail on the administration’s fiscal approach in future, saying that the Office for Budget Responsibility would publish an economic forecast before the end of the year, with a second to follow in the new year.
He said there would be more announcements in the coming weeks that would cover “the planning system, business regulations, childcare, immigration, agricultural productivity and digital infrastructure”.
Elsewhere, he pledged to “accelerate reforms” to the pension charge cap, so it will no longer apply to “well-designed performance fees” and outlined a desire to make Britain’s tax system “simpler” while “winding down” the Office of Tax Simplification.
He said the government planned to introduce new low-tax “investment zones”, which would allow planning rules to be relaxed and reduce business taxes to encourage investment.
The chancellor also said legislation was in the pipeline designed to force trade unions to put pay offers to a member vote so that strikes can only be called once negotiations have definitively broken down.
He also confirmed plans to make around 120,000 more people on Universal Credit take active steps to seek more and better paid work or face having their benefits reduced.
