In a speech hailing a ‘new era for the UK economy’, Kwasi Kwarteng unveiled the biggest tax cuts in 50 years. There will be a reduction in income tax and stamp duty on home purchases, as well as a cancellation of planned increases in business taxes.
In order to kickstart economic growth, Mr Kwarteng said a major change of direction was necessary. However, Labour said it would not solve the cost-of-living crisis and would reward the already wealthy. It comes as the Bank of England warns that the UK may already be experiencing a recession.
Boris Johnson’s economic policies have been overhauled by Mr Kwarteng, who has an eye on boosting economic growth by increasing taxes to fund public services.
In what was dubbed a mini-budget in the Commons, he said high taxes reduce workers’ incentives to work and businesses’ investment incentives. The basic income tax rate will be lowered from 20% to 19% in April, one year earlier than planned.
Moreover, the UK will adopt a single higher rate from April when the top income tax rate is reduced from 45% to 40%.
Among other measures are:
- Home buyers in England and Northern Ireland will have to pay stamp duty on homes worth £250,000 and higher
- The threshold for first-time buyers will rise to £425,000 and the maximum property value they can claim relief on will rise from £500,000 to £625,000
- There will be no increases in duty rates on beer, cider, wine, and spirits
- A bonus cap will be lifted for bankers
- To encourage house building, new investment zones will provide tax cuts and relaxed planning rules for businesses
To address the NHS backlog and pay for social care, Mr Kwarteng reversed the rise in National Insurance payments introduced by Mr Johnson. He also confirmed the scrapping of plans to raise corporation taxes from 19% to 25%.
It is estimated that the permanent tax cuts announced by the chancellor will cost almost £45 billion by 2027, which will “turn a vicious cycle of stagnation into a virtuous cycle of growth”. “We need a new approach for a new era, focused on growth,” he added.
The rate of the government’s borrowing will increase by £72bn as a result of today’s mini-budget announcements, according to the Treasury. The changes to income tax do not apply in Scotland; however, the cuts to corporation tax and national insurance will apply UK-wide.
Labour described his statement as “an admission of 12 years of economic failure”.
“The Conservatives cannot solve the cost-of-living crisis, the Conservatives are the cost-of-living crisis, and our country cannot afford them anymore,” Rachel Reeves, the Shadow Chancellor, commented on today’s budget annoucement .
“The chancellor has made clear who his priorities are today. Not a plan for growth. A plan to reward the already wealthy. A return to the trickle-down of the past. Back to the future, not a brave new era.” she said.