Kwasi Kwarteng last month unveiled what he described as the “biggest package in generations” of tax cuts during a mini-budget designed to boost economic growth.
But the government was on the ropes within hours, precipitating a number of humiliating U-turns. With Kwarteng no longer chancellor, here is where things stand on key points in the package that have come under attack (with the costs to the taxpayer based on Treasury estimates).
Scrapping the 45% higher rate of income tax
Cost: £2.1bn.
Status: Abandoned in a humiliating U-turn during the Conservative party conference, after a growing Tory revolt over the policy and a turbulent reaction from markets. “We get it, and we have listened,” tweeted Kwarteng.
The issue: The sudden change of course followed a realisation within Downing Street that the measure might be voted down in parliament amid vocal opposition by many Conservative MPs. Senior figures had also warned that the party could not sell to the electorate what would, in effect, be a tax cut for the rich.
Cancelling a UK-wide rise in corporation tax, which had been due to increase from 19% to 25% in April 2023
Cost: £18.7bn
Status: In a humiliating U-turn on what had been the flagship policy in her leadership campaign, Truss told a No 10 press conference on Friday that the corporation rise would go ahead after all.
The issue: Tax take would be significantly reduced, raising concerns in financial markets about how the government would fund spending.
Removing a cap on bankers’ bonuses
Cost: Neutral.
Status: A U-turn has appeared unlikely, given that the measure would not have cost the taxpayer. If Truss is seeking to salvage something ideological from the mini-budget, then it may be this.
The issue: Like other mini-budget measures, Conservative MPs had been left in fear that voters would see the move as yet more evidence of the Conservative party being on the side of the wealthy financial elite, rather than standing with the struggling public.
Cutting the basic rate of income tax to 19p next year
Cost: £5.9bn.
Status: Scrapped.
The issue: The cut would leave the Treasury with a shortfall, and would have needed to have been funded through increased borrowing.
A permanent stamp duty cut, with no tax to be paid on properties up to the value of £250,000
Cost: £1.7bn.
Status: Not reversed, as confirmed by the chancellor, Jeremy Hunt. The measure has been popular with many Tory MPs, who had been lobbying for it, and with homeowners, whose savings were wiped out in some cases by an increase in the cost of mortgages.
The issue: The reaction has been mixed, with some experts saying it will ease cost pressures on buyers in the short term, while warning it will cause house prices to increase.
A reversal in the recent rise in national insurance from 6 November
Cost: £18.2bn
Status: A U-turn is unlikely as legislation for the plans has already been passed.
The issue: Money will have to be found from elsewhere – probably general taxation – to fund what was intended to be a way of paying for social care and dealing with the NHS backlog. Revenues would be about £30bn a year lower than they would otherwise have been if Truss’s tax commitments were taken together, according to the Institute for Fiscal Studies (IFS).
A freeze on energy prices for households
Cost: £40bn
Status: Partially reversed: Truss originally announced that the average annual bill for a typical household would be capped at £2,500 for two years. However, Hunt has reduced the cap to just six months, lasting until April 2023.
The issue: The original length of the price freeze would have again left the Treasury with a shortfall, and would have needed to have been funded through increased borrowing.
• This article was amended on 15 October 2022. The cost of cancelling the corporation tax increase would have been more than £18bn, not £2bn as earlier versions said; and the cost of removing the cap on bankers’ bonuses is neutral, not £5bn. These figures have been corrected in the article and the chart. Also, an earlier version said the Institute for Fiscal Studies had calculated that people earning £1m would gain £40,000 a year based on the basic rate of tax being cut to 19%; it was based on the top rate of tax being cut to 40%.
