Kwasi Kwarteng gambles with huge tax cuts in ‘Emergency Budget’
Kwasi Kwarteng is today rolling the dice on the country’s future by unveiling the largest package of tax cuts in three decades in a bid to end the UK’s ‘cycle of stagnation’.
The Chancellor presents an ’emergency budget’ to the House of Commons with a raft of dramatic measures to boost growth.
In an intervention the scale of which rivals the Covid response, Mr. Kwarteng will reverse the increase in national insurance, as well as scrap a massive planned corporate tax hike and limits on City bonuses.
Dozens of low-tax and regulated ‘Investment Zones’ are being created across the country. But the tactics of shock and awe are expected to go even further, with aides promising “rabbits” under 30 policies.
What is Kwasi Kwarteng announcing today?
- Reverse the increase in national insurance schemes
- Canceling the planned corporate tax increase
- Lifting the limit on City bonuses
- Stamp duty reduction
- Bring forward 1p reduction in income tax?
- Creating low-taxed investment zones
- Freeze energy bill costs
Measures to cut stamp duties appear very likely, while there is strong speculation that the 1p cut in the basic income tax rate could be brought forward into next year.
The barrage isn’t technically a budget, but a “fiscal event” — controversially meaning it won’t come with any of the OBR’s usual independent costs.
And economists have sounded the alarm about the massive loans needed to fill the gap 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 measure since Nigel Lawson’s 1988 budget, when Margaret Thatcher, Mrs Truss’ heroine, was prime minister.
The dangers of driving up Britain’s £2.4 trillion mountain of debt as the Ukraine crisis sends inflation soaring was underlined by the pound’s continued decline against the US dollar, which hit a new low in 37 years this morning. barely reached 1.11.
Markets have pushed government lending rates to an 11-year high.
In August and September, 10-year Treasury yields have seen their biggest rise since October and November 1979, highlighting the markets’ nervousness about the situation.
However, Ms. Truss and Mr. Kwarteng argue that ramping up economic activity could make all the difference, pointing to decades of moderate productivity improvements.
The Bank of England yesterday raised interest rates by 0.5 percentage points to 2.5 percent, the highest level since 2008. But it surprised many by halting a larger rise, suggesting that UK plc is already in recession.
Chancellor Kwasi Kwarteng presents ’emergency budget’ to the House of Commons with a raft of dramatic measures to boost growth
Mr Kwarteng enters Downing Street this morning through the back entrance for his ’emergency budget’
Liz Truss leaves Downing Street for the Commons on what could prove to be a pivotal day for her premiership
The Bank of England yesterday hiked interest rates by 0.5 percentage points in a bid to contain rampant inflation
Before the House of Commons statement this morning, the pound had hit another 37-year low against the US dollar
Britain’s £2.4 trillion interest bill reached £8.2 billion last month, the highest August figure since the record began in 1997
Mr Kwarteng told MPs: ‘Growth is not as high as it should be, which has made it more difficult to pay for public services, forcing taxes to rise.
“This cycle of stagnation has meant that the tax burden is expected to reach its highest level since the late 1940s. We are determined to break that cycle. We need a new approach for a new era of growth.
‘In this way we ensure higher wages, more opportunities and sufficient income to finance our public services, now and in the future. In this way we will successfully compete with dynamic economies around the world. Thus we will turn the vicious circle of stagnation into a beneficial growth cycle. We will be courageous and unabashed in pursuing growth, even if it means making difficult decisions. The delivery work starts today.’
Leveling Up minister Simon Clarke was sent out this morning to tour broadcast studios, dismissing the suggestion that the economic plan was a ‘gamble’.
He called it a “game-changing financial statement” and said the measures were aimed at returning the UK to growth levels it had experienced before the 2008 financial crash.
He told Sky News that Mr Kwarteng “would tackle the record high tax burden on households and businesses, which clearly shows that we’ve had some extremely difficult years, but are taking a fundamentally new approach to driving for growth to make sure we win.” the argument that a more successful business economy is good for the whole country’.
Today’s tax statement was billed as a “mini-budget,” but yesterday the Institute of Fiscal Studies said it would amount to the largest tax refund in three decades.
Then Chancellor Lord Lawson delighted Conservative MPs in 1988 when he used his budget to cut income tax, cut the base rate by 2p in the pound and scrap all higher rates above 40 per cent.
IFS Director Paul Johnson said: “This, we think, will be the biggest tax cut since Nigel Lawson’s 1988 budget. 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 in tax cuts, the government deficit could reach around £100bn by 2025, putting “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 huge package of state aid to deal with the cost of living crisis. It estimates that in real terms, an average earner will be £500 worse off than last year – a drop in income of about 3 percent. Higher earners will be £1,000 worse off.
“I’m afraid the energy price shock has made us poorer and we will be worse off,” said Mr Johnson. “Government can spread the pain over time and between people, but it won’t be able to magic it away in the end.”
The chancellor also announces that officials are in talks with 38 municipal and mayoral areas to establish “investment zones.” Each zone offers tax breaks for businesses to help them create jobs and improve productivity.
The areas will have less strict planning rules and there will be reforms in environmental regulations to make it easier to build more homes and commercial properties.
Mr. Kwarteng will also announce legislation to accelerate the delivery of approximately 100 major infrastructure projects, including transportation, energy and digital schemes.
This could include removing rules to protect rare and endangered species. The chancellor will also use his “fiscal event” to provide details on how the state will fund an energy price cap announced by the prime minister earlier this month.
Downing Street insisted that Liz Truss remained committed to the 2019 Tory election manifesto despite a sharp break with the economic policies of the Boris Johnson administration.
She told New York business leaders this week that she wanted “lower, simpler taxes in the UK to boost investment, to get more UK businesses up and running.”
She would believe that cutting stamp duty – paid when buying a property worth more than £125,000 – would boost growth by encouraging more people to move and by helping start-ups.
The prime minister said on Wednesday: “We are not going to raise corporate taxes as planned. We are reversing the increases in national insurance policies that took place earlier this year. And the Chancellor is announcing several other simplification measures.’
Acclaimed: Nigel Lawson with his Budget red box. The former Chancellor is pictured outside 11 Downing Street. Then-Chancellor Lord Lawson used his budget to cut income tax, cut the base rate by 2 pence in the pound and scrap all higher rates above 40 percent in 1988
The Bank recently reflected on a host of dismal data, including July GDP data and August retail sales