The Chancellor will hail ‘a new approach for a new era’ of growth today as he unveils the biggest tax giveaway in three decades.
Vowing to break a ‘cycle of stagnation’ that has lumbered Britain with a massive tax burden, Kwasi Kwarteng will outline action to support families and boost business.
His ‘growth plan’ has 30 measures to drive down taxation, tackle high energy bills and curb inflation.
It includes cutting stamp duty, reversing the national insurance rise and scrapping a planned increase in corporation tax.
Government sources suggested there might be a further ‘rabbit out of the hat’ announcement – possibly a 1p cut in the basic rate of income tax next year.
Kwasi Kwarteng will outline action to support families and boost business. Mr Kwarteng is expected to tell MPs today that a ‘cycle of stagnation has led to the tax burden being forecast to reach the highest levels since the late 1940s,’ adding: ‘We are determined to break that cycle’
In other financial developments:
– The Bank of England yesterday hiked interest rates by 0.5 percentage points to 2.25 per cent – the highest level since 2008
– It also declared that the economy was now shrinking but that a deep recession might be averted and inflation brought more under control as a result of the Government’s new energy price cap
– Business Secretary Jacob Rees-Mogg announced that the ban on fracking in England had been lifted
– The Chancellor confirmed the national insurance hike will be reversed in November
– Universal Credit claimants could have their benefits cut unless they take active steps to work at least 15 hours a week at the national living wage
Mr Kwarteng is expected to tell MPs today: ‘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.
‘That is how we will deliver higher wages, greater opportunities and sufficient revenue to fund our public services, now and into the future. That is how we will compete successfully with dynamic economies around the world.
That is how we will turn the vicious cycle of stagnation into a virtuous cycle of growth. We will be bold and unashamed in pursuing growth – even where that means taking difficult decisions. The work of delivery begins today.’
Officials are in talks with 38 council and mayoral areas to set up ‘investment zones’. Each zone will offer tax cuts for businesses to help them create jobs and improve productivity
Today’s fiscal statement had been billed as a ‘mini-budget’, but yesterday the Institute for Fiscal Studies said it would amount to the biggest tax giveaway in three decades.
Then-chancellor Lord Lawson delighted Conservative MPs in 1988 when he used his budget to slash income tax, cutting the basic rate by 2p in the pound and scrapping all higher rates above 40 per cent.
IFS director Paul Johnson said: ‘This will actually, we think, be the biggest tax-cutting fiscal event since Nigel Lawson’s budget of 1988. So it may not be a budget but in terms of tax cuts it is going to be bigger than any budget for more than 30 years.’
Universal Credit claimants could have benefits cut unless they take steps to work at least 15 hours a week
Mr Johnson said that with £30billion of tax cuts, the deficit could hit around £100billion by 2025, which would ‘put debt on an unsustainable path’.
A big increase in economic growth would make things easier but that was not guaranteed, he added.
The IFS also warned that most households will be worse off this year despite a massive package of state support to deal with the cost of living crisis. It reckons that a median earner will be £500 worse off in real terms than they were last year – a cut of around 3 per cent in their income. Higher earners will be £1,000 worse off.
‘I am afraid that the energy price shock has made us poorer and we will be worse off,’ said Mr Johnson. ‘The Government can spread the pain over time and between people but in the end it is not going to be able to magic it away.’
The Chancellor will also announce that officials are in talks with 38 council and mayoral areas to set up ‘investment zones’. Each zone will offer tax cuts for businesses to help them create jobs and improve productivity.
The areas will have less strict planning rules and there will be reforms to environmental regulations to make it easier to build more houses and commercial property.
Lauded: Nigel Lawson with his Budget red box. The former Chancellor is pictured outside 11 Downing Street. Then-chancellor Lord Lawson used his budget to slash income tax, cutting the basic rate by 2p in the pound and scrapping all higher rates above 40 per cent in 1988
Mr Kwarteng will also announce legislation to accelerate the delivery of around 100 major infrastructure projects, including transport, energy and digital schemes.
This could include scrapping rules protecting rare and endangered species. The Chancellor will also use his ‘fiscal event’ to set out details of how the state will fund an energy price cap announced by the Prime Minister earlier this month.
Downing Street insisted that Liz Truss remained committed to the 2019 Tory election manifesto, despite making a sharp break with the economic policies of Boris Johnson’s administration.
She told business chiefs in New York this week she wanted ‘lower, simpler taxes in the UK to incentivise investment, to get more businesses going in the UK’.
She is said to believe that cutting stamp duty – paid when buying a property worth more than £125,000 – would drive growth by encouraging more people to move, as well as helping first-time buyers.
The PM said on Wednesday: ‘We won’t be raising corporation tax, as was planned. We’ll be reversing the national insurance rises which took place earlier this year. And the Chancellor will be announcing various other simplification measures.’
A boost for savers, but should Bank have gone further?
Commentary by Alex Brummer
Andrew Bailey’s critics say he dithered for more than a year as he failed to grasp the threat posed by inflation and delayed increasing the Bank of England’s base rate.
Even after yesterday’s 0.5 percentage point jump, which raised the total to 2.25 per cent, many believe he should have gone further.
Yes, this was the seventh hike in a row and it brought the rate to the highest level since 2008. But the governor firmly resisted calls for an even sharper rise – worrying that a tougher stance could risk tipping Britain into a deeper recession.
The Bank’s own Monetary Policy Committee was far from unanimous on the increase: three of its members wanted to see a 0.75 percentage point hike, which would have been the biggest single rate rise in 33 years.
So why did Bailey not go further? It’s likely he was guided by the Bank’s own assessments, which show that Britain is already heading into recession. Thanks in large part to Liz Truss’s energy price guarantee, which aims to cap soaring gas prices for families and businesses, the peak inflation forecast for this year has fallen from 13.3 per cent to a still-alarming 11 per cent. Even that is still more than five times the Bank’s 2 per cent target.
Sterling dropped again overnight to barely 1.12 against the greenback after the Federal Reserve imposed its own 0.75 percentage point interest rate hike. Having clawing back some ground over the morning, the Pound immediately tumbled again when the Bank’s announcement happened at noon
To make matters worse, by increasing the base rate less than the markets wanted, the Bank risks making the pound fall even further against the dollar and other major currencies.
Sterling has tumbled 4.5 per cent since August alone – and is now at its lowest level against the dollar since 1985. When Covid-19 struck in early 2020, Bailey slashed the base rate to the historic low of 0.1 per cent. Many believe he was far too slow to raise it again when the worst of the pandemic was over.
Other central bankers have been willing to take far more drastic action. On Wednesday, America’s Federal Reserve raised rates by 0.75 percentage points to 3.5 per cent in total, in a bid to stem runaway inflation.
The Bank of England doesn’t target a particular exchange rate. But a weak pound may worsen inflation – counteracting Truss’s energy-price gambit.
Yesterday’s rate rise came ahead of today’s ‘fiscal event’ – don’t call it a budget! – to be unveiled by Chancellor Kwasi Kwarteng.
Since taking office only weeks ago, Liz Truss’s government has committed to spending a huge sum – up to £150billion by the highest estimates – to shield households from soaring energy bills this winter, with another £40billion or so being targeted at businesses.
This, together with Kwarteng’s expected tax cuts today – including spiking the hike in national insurance and cancelling a proposed rise in corporation tax – has caused consternation in the markets. The Institute for Fiscal Studies think tank has even claimed that the policies could make Britain’s public finances ‘unsustainable’.
Today is the seventh consecutive month that the Bank has raised rates, although the level is still historically fairly low
So what conclusions can we draw?
Another increase in the base rate should cheer savers, who are finally starting to see a return on their deposits. It must be said, however, that these increases will be nowhere near enough to match the ravages of inflation, and many banks have been disgracefully slow at passing increases on to their customers.
Meanwhile, homeowners – especially those on tracker mortgages and anyone taking out a new loan – will immediately feel the impact of the increase in mortgage rates. Even those on fixed-rate mortgages will only be insulated for so long. This could impact on house prices.
Overall, the government finds itself in a stronger position than it probably did back in March. Tax receipts have been resilient. The strain on the public finances may be less than some analysts are projecting.
Nevertheless, this will not be the last rise to interest rates – and borrowers face a long hard winter, whatever their thermostat says.
NI hike WILL be spiked on November 6
By Harriet Line Chief Political Correspondent
The national insurance hike will be reversed from November 6, the Chancellor announced yesterday.
In a victory for the Daily Mail’s Spike the Hike campaign, Kwasi Kwarteng said the 1.25 percentage point rise for workers and businesses would be axed.
Since April, workers and employers have been paying an extra 1.25p in the pound to help fund the NHS and social care.
In July then-chancellor Rishi Sunak raised the threshold at which NI is paid to offset the increase for many workers. But the Mail led calls for the Government to spike the hike altogether amid the cost of living crisis.
Yesterday Mr Kwarteng confirmed that the rise would be reversed in November. He said the Government would also cancel the health and social care levy, which was due to come into force in April 2023 to replace the national insurance rise.
Reversing the hike will help nearly 28million workers keep more of what they earn. The move will be worth an extra £330 on average in 2023-24. It will also reduce tax for 920,000 businesses by nearly £10,000 on average next year, according to the Treasury.
MPs are expected to vote on repealing the levy when they return from party conferences.
Kwasi Kwarteng said the 1.25 percentage point rise in National Insurance tax for workers and businesses would be axed
The tax was expected to raise around £13billion a year to fund health and social care – but the Chancellor has confirmed that the funding will be maintained at the same level as if the levy was in place. Mr Kwarteng said: ‘Taxing our way to prosperity has never worked. To raise living standards for all, we need to be unapologetic about growing our economy.’
He added: ‘Cutting tax is crucial to this – and whether businesses reinvest freed-up cash into new machinery, lower prices on shop floors or increase staff wages, the reversal of the levy will help them grow, while also allowing the British public to keep more of what they earn.
‘A tax cut for workers. More cash for businesses to invest, employ and grow.’ The reversal was welcomed last night by business leaders, who said it would help support livelihoods and jobs.
Kitty Ussher, chief economist at the Institute of Directors, said: ‘At a time when business is already facing unprecedented energy and other supply-side costs, this is a hugely important change that can improve the situation for SMEs [small and medium-sized enterprises] trying to grow in very difficult circumstances.’
Martin McTague, national chairman of the Federation of Small Businesses, said: ‘This is clear and decisive action to support growth.
‘The decision to reverse all four of these tax rises will support livelihoods, jobs and small businesses across the UK.
‘Removing taxes on jobs, investment and growth is the right thing to do, and FSB has campaigned long and hard for this decision.’
And the British Chambers of Commerce said the announcement would provide ‘much needed support for businesses during these difficult times’.
The Chancellor is also expected to announce that a 1.25 percentage point increase in income tax on dividends, introduced this April, will be reversed from April 2023.