Rob Pinney | News Getty Images | Getty Images LONDON — The United Kingdom’s new government announced a sweeping program of tax cuts and investment incentives on Friday as Prime Minister Liz Truss seeks to boost the country’s faltering economic growth. Speaking in the House of Commons, Finance Minister Kwasi Kwarteng said the government wanted a “new approach for a new growth-focused era” and was targeting a medium-term growth rate of 2.5%. “We believe that high taxes reduce incentives to work, deter investment and hinder business,” Kwarteng said. Measures include:
Cancel a planned increase in corporate tax to 25%, keeping it at 19%, the lowest rate in the G-20. Reversal of the recent 1.25% increase in National Insurance contributions, income tax. Reduction in the basic rate of income tax from 20 p.m. at 7 p.m. Abolish the top rate of tax of 45% paid on incomes above £150,000. Significant cuts in stamp duty, a tax paid on home purchases. A network of “investment zones” across the country where businesses will be offered tax breaks, liberalized planning rules and reduced regulatory barriers. Claim plan for taxes paid for shopping by tourists. Abolition of increase in tax rates on various alcohols. Abolition of cap on bankers’ bonuses.
It comes a day after the Bank of England said the UK economy was likely to have entered a formal recession in the third quarter as it raised interest rates by 50 basis points to combat decades-high inflation. Despite containing far-reaching reforms, the package is not described by the government as an official budget, as it is not accompanied by the usual economic forecasts from the Office for Budget Responsibility. Critics of the proposals warn that the combination of sweeping tax cuts and the government’s plan to shield households and businesses from rising energy prices will see the UK take on high levels of debt at a time of rising interest rates. The energy support package is expected to cost more than 100 billion pounds ($111 billion) over two years. Figures released on Wednesday showed the UK government borrowed £11.8 billion in August, significantly higher than forecast and £6.5 billion more than the same month in 2019, as government spending rose. Kwarteng said on Friday that the UK has the second lowest debt-to-GDP ratio in the G-7 and will announce a plan to reduce debt as a percentage of GDP in the medium term. On energy, he said price caps would reduce peak inflation by 5 percentage points and ease wider cost-of-living pressures. He also announced an energy market financing scheme, in partnership with the Bank of England, which will offer a 100% guarantee to commercial banks offering emergency liquidity to energy traders. The Institute for Fiscal Studies, an economic think tank, said reversing the income tax rise and canceling the planned rise in corporation tax would reduce tax revenue by £30 billion. He added that “laying out plans based on the idea that across-the-board tax cuts will provide a lasting boost to growth is a gamble at best.” The opposition Labor party argues that the tax cuts will disproportionately benefit the wealthy and be financed by unsustainable borrowing. Speaking in the Commons, Kwarteng Labor opposite Rachel Reeves called the plans financially weakened and invoked US president Joe Biden, who this week said he was “sick and tired” of the policy and that it had never worked. This is breaking news, check back later for more.