Chancellor Kwasi Kwarteng has abolished the top rate of income tax for the highest earners, as he spent tens of billions of pounds in a bid to drive up growth to ease the cost of living crisis.
In a so-called 'mini-budget' axing the cap on bankers’ bonuses and adding restrictions to the welfare system, he argued that tax cuts are “central to solving the riddle of growth”.
He scrapped the 45% higher rate of income tax and brought forward the planned cut to the basic rate to 19p in the pound a year early to April.
Kwarteng also revealed his estimate that the two-year energy bills bailout will cost around £60bn over its first six months from October.
The package enacting Prime Minister Liz Truss’s tax-cutting promises including reversing the national insurance rise and axing the hike to corporation tax, came a day after the Bank of England warned the UK may already be in a recession.
The Bank also lifted interest rates to 2.25% – the highest level for 14 years.
Kwarteng said their economic vision would “turn the vicious cycle of stagnation into a virtuous cycle of growth”.
By terming it a “fiscal event” rather than a full budget, Kwarteng avoided the immediate scrutiny and forecasts of the Office for Budget Responsibility.
The pound dropped to a fresh 37-year-low against the dollar, with Sterling down by 0.89% to 1.115 US dollars, meaning it has shed 17% against the US currency so far this year.
Kwarteng said the UK’s additional rate of income tax at 45% is higher than the headline top rate in other G7 countries, telling MPs: “I’m not going to cut the additional rate of tax today. I’m going to abolish it altogether.
“From April 2023 we will have a single higher rate of income tax of 40%, this will simplify the tax system and make Britain more competitive, it will reward enterprise and work, it will incentivise growth, it will benefit the whole economy and the whole country.
“And, Mr Speaker, after all, this only returns us to the same top rate we had for 20 years - including the entire time the opposition was last in power - bar one month.”
Kwarteng added: “I can announce today that we will cut the basic rate of income tax to 19p in April 2023 – one year early.
“That means a tax cut for over 31 million people in just a few months’ time. This means we will have one of the most competitive and pro-growth income tax systems in the world.”
The Chancellor also confirmed a cut in stamp duty, telling the Commons: “Home ownership is the most common route for people to own an asset, giving them a stake in the success of our economy and society.
“So, to support growth, increase confidence and help families aspiring to own their own home, I can announce that we are cutting stamp duty. In the current system, there is no stamp duty to pay on the first £125,000 of a property’s value - we are doubling that to £250,000.”
Kwarteng said the stamp duty threshold for first-time buyers would be increased from £300,000 to £425,000.
He added: “We’re going to increase the value of the property on which first-time buyers can claim relief, from £500,000 to £625,000.
“The steps we’ve taken today mean 200,000 more people will be taken out of paying stamp duty altogether; this is a permanent cut to stamp duty, effective from today.”
Kwarteng outlined his desire to make the tax system “simpler” and said he would “wind down” the Office of Tax Simplification.
He said he has mandated his tax officials to focus on simplifying the tax code.
He added that the UK Government will “automatically sunset” EU regulations by December 2023, requiring departments to review, replace or repeal retained EU law in a bid to help businesses.
Kwarteng said the government would also simplify IR35 rules, noting reforms to off-payroll working have added “unnecessary complexity and cost” for many businesses.
He said: “As promised by the Prime Minister, we will repeal the 2017 and 2021 reforms; of course, we will continue to keep compliance closely under review.”
Kwarteng also announced that planned alcohol duty rises would be cancelled.
“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.”
The Chancellor said that VAT-free shopping would be introduced for overseas visitors and also confirmed that the planned rise in corporation tax would be cancelled.
“The interests of businesses are not separate from the interest of individuals and families - in fact, it is businesses that employ most people in this country - it is businesses that invest in the products and services we rely on.”
He added: “I can therefore confirm that next year’s planned increase in corporation tax will be cancelled. The UK’s corporate tax rate will not rise to 25% – it will remain at 19%.
“We will have the lowest rate of corporation tax in the G20, this will plough almost £19bn a year back into the economy.”
Kwarteng was heckled by opposition MPs and cheered by his own side as he confirmed plans to get rid of the cap on bankers’ bonuses.
He told the Commons: “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.”
He also confirmed the UK Government’s plans for new low tax “investment zones”.
“We will liberalise planning rules in specified agreed sites, releasing land and accelerating development.
“We will cut taxes, for businesses in designated tax sites, for 10 years, there will be accelerated tax reliefs for structures and buildings and 100% tax relief on qualifying investments in plant and machinery.”
He added that the government was in early discussions with regions across England to establish the new zones, as well as the devolved administrations in Scotland, Wales and Northern Ireland.
Tackling recent industrial action during the summer, Kwarteng said it is “simply unacceptable” for strike action to disrupt lives, telling MPs that the government will seek to introduce minimum service levels, before adding: “We will legislate to require unions to put pay offers to a member vote to ensure strikes can only be called once negotiations have genuinely broken down.”
Kwarteng said he would “accelerate reforms” to the pension charge cap so it will no longer apply to “well-designed performance fees”.
He also stated that the government was “publishing a list of infrastructure projects that will be prioritised for acceleration, in sectors like transport, energy and telecoms”.
He added: “To increase housing supply and enable forthcoming planning reforms, we will also increase the disposal of surplus government land to build new homes. We are getting out of the way to get Britain building.”
Kwarteng went on to outline the government’s support for businesses.
“The Energy Bill Relief Scheme will reduce wholesale gas and electricity prices for all UK businesses, charities and the public sector like schools and hospitals - this will provide a price guarantee equivalent to the one provided for households, for all businesses across the country.”
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