CHANCELLOR Kwasi Kwarteng said on Friday he would scrap the top rate of income tax and cut the basic rate next April – a year earlier than expected – to spur economic growth.
Kwarteng said from April 2023 the UK would have a single higher rate of income tax of 40 per cent, scrapping an additional rate of 45% on income over 150,000 pounds.
He also said he would cut the basic rate of income tax to 19 pence in April 2023, one year earlier than expected.
“That means a tax cut for over 31 million people in just a few months’ time,” he told parliament.
“That means we will have one of the most competitive and pro-growth income tax systems in the world.”
Kwasi Kwarteng pledged to “turn the vicious cycle of stagnation into a virtuous cycle of growth” as he set out the new Government’s approach to the UK economy.
The Chancellor announced tens of billions of pounds both of increased spending and of tax cuts in his mini-budget, officially known as a “fiscal event”, on Friday.
The statement included details of how the Government will fund the energy price cap for households and businesses, and put into practice many of Prime Minister Liz Truss’s tax-slashing promises.
The Government is dubbing it a “growth plan” of some 30 measures, which comes at a time when the UK faces a cost-of-living crisis, recession, soaring inflation and climbing interest rates.
Mr Kwarteng told the House of Commons: “Growth is not as high as it needs to be, which has made it harder to pay for public services, requiring taxes to rise.
“This cycle of stagnation has led to the tax burden being forecast 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.”
He said that this will deliver enough revenue to fund public services, and allow Britain to compete with other leading economies.
“That is how we will turn the vicious cycle of stagnation into a virtuous cycle of growth,” Mr Kwarteng said, adding that Ms Truss’s administration will be “bold and unashamed in pursuing growth – even where that means taking difficult decisions”.
The Chancellor confirmed ahead of his mini-budget that the national insurance hike introduced by Boris Johnson’s government to pay for social care and tackling the NHS backlog will be reversed.
He also revealed plans to axe the planned increase in corporation tax from 19% to 25%, and scrap the cap on bankers’ bonuses as part of wider City deregulation.
It has also been reported that he will cut stamp duty in a further attempt to drive growth.
Proposals to fast-track a scheduled 1p cut to income tax and to slash VAT from 20% to 15% across the board are reportedly also being considered.
The Government is in talks with local authorities in the West Midlands, Tees Valley, Somerset and other regions to establish new investment zones – areas with lower taxation and planning rules, the Chancellor announced.
“The time it takes to get consent for nationally significant projects is getting slower, not quicker, while our international competitors forge ahead. We have to end this,” Mr Kwarteng is expected to say.
He also wants new measures to speed up around 100 major infrastructure projects, including new roads, railways and energy projects, by watering down environmental assessments and other regulations.
In a shake-up of the welfare system, Mr Kwarteng could reportedly announce that 120,000 Universal Credit claimants will have to take active steps to find work or lose benefits.
A price cap for the next two years of £2,500 on the average household’s annual energy bill was announced by Ms Truss shortly after she took office, with a six-month freeze on bills for businesses and other non-domestic users unveiled this week.
Estimates of the cost of the energy package are as high as £150 billion.
Some economists have warned about the sharp rise in Government borrowing to fund the plans.
Labour also warned of increased risk and said the plans followed 12 years of “low growth and plummeting living standards”.
Pat McFadden, shadow chief secretary to the Treasury, said: “The Conservatives don’t have a new plan for economic growth. They have simply moved from levelling up to trickle down and that has not worked in the past.
“Their choice to fund all of this through borrowing and not attempt to fund even a proportion of it through a windfall tax on the energy companies making the most from the current crisis increases risk and leaves British taxpayers paying more for longer.
“They are doing all of this at a time when inflation is high and interest and mortgage rates are already on the rise.”
The Bank of England on Thursday hiked interest rates to 2.25% – their highest in more than 13 years – and indicated it believes the economy is already in recession.
Governor Andrew Bailey warned Mr Kwarteng in a letter that interest rates might have to be raised even further to curb the extra demand caused by his new tax cuts.
He wrote that the Government’s energy price guarantee risked adding to “inflationary pressures in the medium term”.
In response, Mr Kwarteng challenged the central bank to “continue to take the forceful action necessary” to rein in near-double digit inflation.
The Chancellor, who has previously criticised the bank’s record on containing inflation, also noted that “not all of the UK’s above target inflation can be attributed to global events and that inflationary pressures are becoming more domestically driven”.
Unlike a full budget, which would typically be held in November, Mr Kwarteng will only put forward a handful of major legislative proposals.
He has come under fire for preventing the independent Office for Budget Responsibility (OBR) from making the economic forecasts usually published alongside a budget, sparking accusations that he is avoiding scrutiny.
The lack of OBR data means there will be no independent analysis of whether the announcements breach the Government’s existing budget rules or their impact on growth.
Earlier this week, Ms Truss said she is willing to be an unpopular Prime Minister to bring in measures she believes will grow the economy.