Mini-Budget: Kwasi Kwarteng says UK at ‘beginning of new era’
Chancellor Kwasi Kwarteng promised a “new approach, for a new era” as he vowed Britain would finally capitalise on the benefits of Brexit with a series of spectacular tax cuts. In a Commons statement just two weeks after taking the job, Mr Kwarteng announced a revolutionary package of measures to overhaul the British economy and bring growth up to at least 2.5 percent.
The statement, which had been dubbed a “mini budget” ahead of today, was the most radical fiscal intervention in 50 years.
Speaking in Parliament, Mr Kwarteng announced the:
Abolition of stamp duty on homes up to £250,000 and up to £425,000 for first time buyers
End of the 45p top rate income tax and a 1p cut in the basic rate to 19p
Reversal of the hike in national insurance contributions
Scrapping of planned corporation tax rises next year
The tax cuts, coupled with the energy bills package announced earlier this month, will cost a total of £105billion by 2026 according to Treasury estimates.
Kwasi Kwarteng unveiled radical tax cuts
Newly appointed Chancellor Kwasi Kwarteng has revealed his “mini budget” in the House of Commons today. His speech delivered one of the biggest economic reforms in decades as the Chancellor swore to slash skyrocketing inflation by five percent.
Mr Kwarteng vowed the Government would be “bold and unashamed in pursuing growth” and was not afraid to make the “difficult decisions” to make it happen.
The announcement from the Chancellor comes amid a dire economic backdrop. Yesterday the Bank of England raised interest rates to 2.25 percent as it warned the UK was likely already in a recession, the pound sterling fell to its lowest against the dollar since 1985, and Government bonds recorded their biggest one-day fall since the start of the pandemic.
Mr Kwarteng told MPs: “For too long in this country, we have indulged in a fight over redistribution. Now, we need to focus on growth, not just how we tax and spend.
“We won’t apologise for managing the economy in a way that increases prosperity and living standards. Our entire focus is on making Britain more globally competitive – not losing out to our competitors abroad.
“The Prime Minister promised we would be a tax-cutting government. Today, we have cut stamp duty, we have allowed businesses to keep more of their own money to invest, to innovate, and to grow, we have cut income tax and national insurance for millions of workers, we are securing our place in a fiercely competitive global economy with lower rates of corporation tax and lower rates of personal tax.
“We promised to prioritise growth. We promised a new approach for a new era. We promised to release the enormous potential of this country. Our growth plan has delivered all those promises and more.”
The Chancellor said he was focused on ‘growth, not just tax and spend’
The Chancellor said he wouldn’t apologise for his approach
Labour’s shadow chancellor Rachel Reeves said the announcements were “a return to the trickle down of the past”.
She added: “The Prime Minister and Chancellor are like two desperate gamblers in a casino chasing a losing run.
“The argument peddled by the Chancellor isn’t a great new idea or a gamechanger, as the minister said, as much as they’d like us to think so.
“What this plan adds up to is to keep corporation tax where it is today, and take national insurance contributions back to where they were in March. Some new plan.”
Rachel Reeves said the strategy was ‘trickle down’ economics
National Insurance hike reversed
The increase in national insurance contributions imposed by Rishi Sunak are to be reversed from November 6.
Mr Kwarteng’s predecessor introduced the tax rise, which broke a commitment made in the 2019 Conservative party election manifesto, in order to pay for the NHS backlog caused by Covid and to fund social care.
The reversal of the increase means the average British worker will now keep an extra £330 a year of their salary.
The Chancellor said: “It is an important principle that people should keep more of the money they earn. It is a good policy to boost the incentives for work and enterprise.
“Yesterday, we introduced a Bill that means the Health and Social Care Levy will not begin next year. It will be cancelled.”
Income tax reform
Widespread changes to income tax will come into effect from next April.
Those earning more than £150,000 a year will no longer pay the top income tax rate of 45 percent. Instead, they will only pay the 40 percent tax rate which is applied to those earning more than £50,271 a year.
About 600,000 people will benefit from the abolition of the 45p rate, saving them an average of £10,000 a year, Mr Kwarteng said.
At the same time, he brought forward a planned cut to the basic rate of income tax to 19p in the pound a year early.
Treasury officials say the basic tax rate is now the lowest it has ever been.
Basic rate income tax
Stamp duty threshold increased
Stamp duty for this purchasing property will not need to be paid on homes worth less than £250,000.
Mr Kwarteng announced he was doubling the threshold at which it is first paid.
For first-time home buyers, the threshold for paying stamp duty is increasing from £300,000 to £425,000.
The Chancellor said: “The steps we’ve taken today mean 200,000 more people will be taken out of paying stamp duty altogether.”
A Treasury source added: “We have effectively abolished stamp duty.”
Stamp duty threshold
End of the EU’s bankers’ bonus cap
The Chancellor axed the cap on bankers’ bonuses imposed on the UK in 2014 via the EU.
The cap was introduced by Brussels in the aftermath of the 2008 final coal crisis to limit bonuses to 100 percent the value of salary, to 200 percent if agreed by shareholders.
Mr Kwarteng said: “A strong UK economy has always depended on a strong financial services sector.
“We need global banks to create jobs here, invest in London, and pay taxes in London, not Paris, not Frankfurt, not New York. All the bonus cap did was to push up the basic salaries of bankers, or drive activity outside Europe.
“It never capped total remuneration, so let’s not sit here and pretend otherwise. So we’re going to get rid of it.
“And to reaffirm the UK’s status as the world’s financial services centre, I will set out an ambitious package of regulatory reforms later in the autumn.”
Planned alcohol duty rises cancelled
Broad reforms to alcohol duties were announced by Rishi Sunak earlier this year. But the Chancellor said he was making changes after having “listened to industry concerns”.
He said: “Our drive to modernise also extends to alcohol duties. I have listened to industry concerns about the ongoing reforms. I will therefore introduce an 18-month transitional measure for wine duty.
“I will also extend draught relief to cover smaller kegs of 20 litres and above, to help smaller breweries. And, at this difficult time, we are not going to let alcohol duty rates rise in line with RPI.
“So I can announce that the planned increases in the duty rates for beer, for cider, for wine, and for spirits will all be cancelled.”
New investment zones
The new Government hopes to boost economic growth with the creation of more than 30 investment zones which will have tax breaks and less red tape to encourage new businesses and employment.
Mr Kwarteng announced that he was having discussions with 38 different local authorities to set up the new zones all around England and appealed to the devolved governments in Scotland and Wales to follow suit.
This follows the creation of freeports by Boris Johnson’s Government as tax-free zones to take advantage of Brexit. Mr Kwarteng said: “If we really want to level up – we have to unleash the power of the private sector.”
The Chancellor also announced that the Government would be overhauling the planning system to allow major projects to go ahead more easily. In the mini-budget blue book, he listed 138 projects which had been held up unnecessarily through local objections and EU laws which he also vowed to remove.
A Treasury source said: “That list is not exhaustive, they are particular ones which we feel have been held up.”
Mr Kwarteng said: “Today, our planning system for major infrastructure is too slow and fragmented. “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.”