Kwasi Kwarteng has bet the government’s re-election in 2024 on the biggest tax cuts in 50 years after the UK chancellor announced cuts to the 45% top rate of income tax, national insurance and stamp duty worth £45 billion.
Facing accusations of a ‘class war’ mini-budget that rewarded the wealthy more than the low-income, Kwarteng said his efforts to spur growth and boost the economy included helping all households after proposing a planned reduction of 1 pence in the basic rate of income tax from 2024 to next year.
The top tax rate of 45p on income over £150,000 a year will be scrapped, leaving the top rate at 40p. Income tax changes apply in England, Wales and Northern Ireland.
The Treasury acknowledged after the budget that around 660,000 of the highest earners will benefit from the abolition of the 45p rate, recouping an average of £10,000 a year.
A Treasury spokesman said the Chancellor ‘disagreed’ whether it was a budget for the rich or a ‘trickle down economy’ “, but the objective was that “the growth of the economy benefits everyone”.
A National Insurance increase of 1.25% introduced earlier this year will be reversed, saving households £330 a year.
Stamp duty payment thresholds – which apply in England and Northern Ireland – will be raised, reducing the tax paid on the purchase of homes.
The threshold at which first-time buyers start paying stamp duty will increase from £300,000 to £425,000, and the maximum value of a property on which first-time buyers’ relief can be claimed will also increase, from £500 £000 to £625,000. . The chancellor said the cuts would be permanent.
Kwarteng also confirmed that caps on banker bonuses would be removed.
Promising a new era of growth, he said: “High taxes reduce incentives to work and stifle enterprise.
Amid high inflation and forecasts that Britain will face a long recession, the Chancellor has canceled a rise in corporation tax from 19% to 25% next year.
“In the context of the global energy crisis, it is entirely appropriate for the government to act,” he said, adding that “fiscal responsibility remains essential” and that he would authorize the Office of Budget Responsibility (OBR) to review Treasury spending. projects before the end of the year. The OBR, which provides independent economic forecasts based on the government’s plan, was prevented from assessing the mini-budget by Kwarteng.
The Treasury, when asked why it could not produce OBR forecasts, claimed that it would not be able to release full forecasts in time. He admitted there was no forecast as to how much the growth plan would drive growth, or when Kwarteng hoped to hit the 2.5% growth target.
It is reviewing its budgetary rules but these will not be defined at this stage. The Treasury continued to insist that it was not a budget and therefore did not come with the traditional distributional impact showing how the measures would affect rich and poor.
Labor described the mini-budget as a “priceless menu” that rewarded wealthier households while playing games with public finances.
Tory backbenchers gave an extremely low-key response to Kwarteng, exceptionally refraining from applauding or bumping their seats behind the Chancellor. Several Tory MPs have told the Guardian they are worried about the political implications of giving tax cuts to the wealthy, while providing little help to most of the population with the cost of living beyond that. the 1 pence reduction in income tax.
By contrast, Labor MPs were outraged by the measures and emboldened by the idea that voters would reject the Tories, with a shadow cabinet minister saying they believed it would “fall like a bucket of sick people” in the constituencies of the ” red wall.
Financial markets feared the additional borrowing needed to fund Kwarteng’s huge tax cuts, sending the pound plunging below $1.11 for the first time since 1985. Government borrowing costs jumped after the rate borrowing over two years doubled from last month to 4%.
Benchmark 10-year gilt prices also weakened, pushing their yield to the highest since 2011.
Paul Johnson, director of the Institute for Fiscal Studies, said the tax cuts would cost £41billion in 2024 and £45billion in 2026, making the mini-budget the “biggest tax-cutting event ever”. taxes since 1972″.
Recalling the Heath government’s attempt in the early 1970s to spur growth with huge tax cuts orchestrated by then Chancellor Tony Barber, Johnson said: “Barber’s ‘race to growth’ then ended in disaster. This budget is now known as the worst in modern times. Honestly, I hope this one works much better.
Kwarteng also announced that planned increases in duties on beer, wine and spirits would be reversed and that it would cut social benefits if unemployed workers failed to comply with job search requirements.
He said it was outrageous that strikes were disrupting vital services. He said he would introduce legislation making it illegal to hold a strike until “the talks have genuinely broken down”.