wasi Kwarteng has unveiled a mini-budget that delivers billions of pound worth of tax cuts – including a surprise move to scrap the 45% top rate of income tax paid by the UK’s wealthiest.
The Chancellor announced sweeping moves intended to rev up the economy in the eagerly-awaited “fiscal event” on Friday morning.
The Government is dubbing it a “growth plan” at a time when the UK faces a cost-of-living crisis, recession, soaring inflation and climbing interest rates.
The Chancellor told MPs the planned rise to corporation tax would be cancelled as he announced the cap on banker bonuses would be scrapped.
He also announced that the basic rate of income tax would be cut to 19p in the pound from April 2023. And he said the 45% higher rate of income tax will be “abolished”.
Mr Kwarteng said his economic vision would “turn the vicious cycle of stagnation into a virtuous cycle of growth”.
But shadow chancellor Rachel Reeves said the strategy amounts to an “admission of 12 years of economic failure” under successive Conservative governments.
The Labour MP described the Prime Minister and Mr Kwarteng as “two desperate gamblers in a casino chasing a losing run”.
Watch: Chancellor’s mini budget at a glance
Former Tory minister brands tax cuts ‘wrong’
Conservative former cabinet minister Julian Smith has said the Chancellor’s decision to hand a “huge” tax cut to the wealthy was “wrong”.
“In a statement with many positive enterprise measures this huge tax cut for the very rich at a time of national crisis and real fear and anxiety amongst low-income workers and citizens is wrong,” he tweeted.
Govt ‘totally out of touch with public’, says Davey
Liberal Democrats leader Sir Ed Davey said the Chancellor’s mini budget address demonstrated that the Government was “totally out of touch” with the general public.
Speaking on College Green on Friday, Sir Ed said the fact the pound had dipped to a 37-year low against the dollar during Kwasi Kwarteng’s speech to the House of Commons also indicated that global investors were “very worried” about the Government’s new economic strategy.
He said: “This budget shows how the Conservatives are totally out of touch with people. Millions of families and pensioners are struggling with soaring bills on energy, on food, on mortgages, and it looks like the Conservatives either don’t get it or don’t care.
“We needed a plan to help people, and this isn’t a plan for our economy.”
He added: “It looks to me like investors around the world are very worried about this economic package, whether it’s the currency markets with the pound falling, whether it’s the cost of Government borrowing, which has gone up on the back of this, I think people are signalling no confidence in the Conservatives.
“So, it’s not just members of the public who are struggling who feel that the Government is out of touch, it’s international investors also.”
Drinks industry welcomes duty freeze
A planned rise in alcohol duty was among the measures put on ice by the Chancellor in the Commons on Friday.
In a mini-budget that put tax cuts front and centre, Kwasi Kwarteng announced that an increase in duty rates for beer, cider, wine and spirits would be cancelled.
Alongside an 18-month transitional measure for wine duty, he also said he would extend draught relief to smaller kegs to help support smaller breweries.
The Scotch Whisky Association praised the move by the Chancellor, saying the Government had “delivered”.
“The duty freeze will not only support our sector, but the hospitality industry and the wider economy,” it said.
IFS: Chancellor is ‘betting the house’ on risky high borrowing strategy
The Institute for Fiscal Studies (IFS) think tank has analysed the Chancellor’s statement and said he is “betting the house” on a risky strategy.
Director Paul Johnson said: “Injecting demand into this high-inflation economy leaves the government pulling in the exact opposite direction to the Bank of England, who are likely to raise rates in response.
“Early signs are that the markets – who will have to lend the money required to plug the gap in the government’s fiscal plans – aren’t impressed. This is worrying”.
He said Cabinet members could be forgiven for having whiplash, such is the sudden change of the Government’s change of economic policy.
“Mr Kwarteng is not just gambling on a new strategy, he is betting the house,” he said.
West End welcomes return of VAT-free shopping for tourists
West End business leaders have hailed the return of VAT free shopping for foreign visitors as “a great victory” for London.
Chancellor Kwasi Kwarteng said he would reverse the axeing of the perk which had made shopping in the capital 20 per cent cheaper for overseas tourists.
Dee Corsi, interim CEO at business group New West End Company, said: “Today’s decision to reintroduce tax-free shopping for overseas visitors is a great victory for London’s International Centres.
“Now the West End can compete on a level playing field with Paris, Milan and Madrid as one of the world’s top shopping and leisure destinations.”
Linda Ellett, UK head of consumer markets, retail and leisure at consultants KPMG, added: “The return of VAT-free shopping for tourists increases the London’s competitiveness when it comes to attracting the spending power of international visitors.”
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Truss: Our vision sets out how we’re going to rebuild our economy
Liz Truss said that the Government’s economic vision would set out “how we are going to rebuild our economy and deliver for the British people”.
She tweeted: “Growth is key to delivering more jobs, higher pay and more money to fund public services, like schools and the NHS.
“Our Growth Plan sets out how we are going to rebuild our economy and deliver for the British people.”
Renewable energy industry cautiously welcomes plans to make it easier to build wind turbines
The renewable industry has tentatively welcomed the Government’s plan to make it easier for developers to build wind turbines in England for the first time in seven years.
The Government said that it would bring rules for onshore wind farms in line with other developments.
Rules that were put in place in 2015 have effectively stopped the construction of any onshore wind farms in the UK since then.
Jess Ralston, senior analyst at the Energy and Climate Intelligence Unit, said: “Around eight in 10 people support onshore wind, so the ban has been a major anomaly in British energy policy given it’s both cheap and popular with the public.
“So a decision to lift the ban suggests the new Government has listened to the experts and understands building more British renewables reduces our reliance on costly gas and so brings down bills.”
But energy insiders also warned that more detail will be needed, and rules will have to be changed, before they know how significant the move will be.
Conservative donor and entrepreneur welcomes tax cuts
Sir Rocco Forte, a Conservative donor and chairman of Rocco Forte Hotels, welcomed Chancellor Kwasi Kwarteng’s raft of tax cuts.
He told BBC Radio 4’s World At One programme: “I think it’s terrific. I’ve never seen a government hit the ground running as fast as this one in coming to power.
“This is going to be a huge boost to the economy and it’s only the beginning I think of what the Government intends to do.
”I’m very, very encouraged by this. It’s a budget which will help enterprise, it will allow individuals to reap the rewards of their efforts and hard work.”
Tax rises or spending cuts will be needed in future, warns think tank
The Institute for Fiscal Studies has warned future tax rises or spending cuts will be needed to pay for increasing debt.
Deputy director Carl Emmerson estimated that even once the energy support package expires in two years, the Government will be borrowing £110 billion a year, meaning debt continuing to rise.
He told the BBC Radio 4’s The World at One: “It could be that the Government gets lucky and the growth comes along … but at the moment where we’re standing it looks like these tax cuts won’t be sustainable and that other tax rises or spending cuts will be needed to pay for them.
“These tax cuts alone will not deliver sufficient increases in growth to make them self financing.”
The Government argues that the growth the tax cuts will foster will lead to greater tax revenues in the long run.