“The biggest tax cuts since 1988 by the Government in a push for growth are at odds with the policy of the Bank of England who are trying to rein in growth by increasing interest rates, in a bid to curb inflation.”
From Nigel Holland
The Mini Budget
Chancellor Kwasi Kwarteng has pledged to “turn the vicious cycle of stagnation into a virtuous cycle of growth”, as he unveiled his mini-budget.
He is announcing the biggest tax cuts since 1988, to be funded by a sharp rise in borrowing.
It is being seen as a major change of direction for the government under new Prime Minister Liz Truss.
It comes as the Bank of England warns the UK may already be in recession.
In a departure from Boris Johnson’s economic policies, Mr Kwarteng has scrapped plans to push up taxes to pay for public services with the aim of kick-starting the UK’s sluggish economy.
- What is the mini-budget and how will it affect me?
- Chancellor unveils tax cuts in bid to boost growth
In a statement to the Commons, he said: “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.”
The government normally releases an independent forecast of how major tax changes will impact the economy, but Mr Kwarteng has opted not to do this, as his statement is not technically a Budget.
However, Mr Kwarteng promised the Office for Budget Responsibility would publish a full economic forecast before the end of the year, with a second to follow in the new year.
The Institute for Fiscal Studies think tank has published its own analysis, saying: “The government is choosing to ramp up borrowing just as it becomes more expensive to do so, in a gamble on growth that may not pay off.”
The mini-budget fulfilled promises to reverse the rise in National Insurance payments introduced by Boris Johnson to pay for social care and tackle the NHS backlog.
Mr Kwarteng confirmed a planned corporation tax increase from 19% to 25% would also be scrapped.
The chancellor also announced an increase to the threshold people in England start paying stamp duty on home purchases to £250,000.
For first-time buyers the threshold will rise to £425,000.
There are likely to be changes on income tax.
Mr Kwarteng confirmed the cap on bankers’ bonuses would be lifted and new investment zones would be established, where businesses would benefit from tax cuts and planning rules would be relaxed to encourage house building.
The cost of cutting these taxes is estimated at about £30bn a year.
The statement also included details of the cost of the government’s plan to cap energy bills for households and businesses.
Mr Kwarteng said these estimated costs were “particularly uncertain, given volatile energy prices” but based on recent prices the total cost of the package for the six months from October was expected to be around £60bn.
“We expect the cost to come down as we negotiate new, long term energy contracts with suppliers,” he added.