Kwasi Kwarteng is preparing to announce £30bn of tax cuts in an effort to ease the pressure of the cost of living crisis and boost economic growth, according to reports.
It is thought the chancellor will outline plans to reverse the recent national insurance rise and freeze corporation tax in an emergency mini-budget on Friday.
However, the tax cuts could breach the fiscal rule that requires national debt to fall as a share of national income between 2024 and 25.
Kwarteng is likely to extend the target beyond this into the next parliament in an attempt to tackle the “economic shocks” felt by the country, according to the Times.
The recently appointed chancellor is also expected to announce controversial plans to ditch caps on bankers’ bonuses during the financial statement next week.
Kwarteng’s mini-budget will come at the end of what was expected to be a hectic return to politics after the Queen’s funeral on Monday. The business secretary, Jacob Rees-Mogg, is likely to set out further details of the government’s plans to help companies through the energy crisis. And the health secretary and deputy prime minister, Thérèse Coffey, is expected on Thursday to outline her vision to take the NHS through the winter months.
“If we have the £30bn of tax cuts, and we know that the economy is doing less well than it was, they may well change the rules,” Paul Johnson, director of the Institute for Fiscal Studies, said.
“When you’ve got a slowing economy and you’re cutting taxes then clearly that’s going to lead to more government borrowing and therefore debt, increasing the risk that you break the fiscal rules.”
The chancellor’s tax cuts follow the government’s announcement of a £150bn energy cap to help with the cost of rising bills, freezing energy bills at an average of £2,500 a year for two years.
It will replace the existing Ofgem energy price cap, which was due to reach £3,549, and will include the temporary removal of green levies worth about £150.
“Kwarteng’s mini-budget will be defined by an unprecedented energy support package for households and businesses in the midst of a materially weaker macro backdrop,” Sanjay Raja, senior economist for Deutsche Bank, said.
“Combined with unfunded tax cuts, our base case is for a material deterioration in the public finances.”
Any changes to fiscal rules will be confirmed in the full budget, expected in November.
During the Conservative leadership contest, Liz Truss insisted her fiscal plans would cost £30bn despite economists estimating the real figure to be considerably higher.
She suggested she would scrap the planned corporation tax rise despite being warned a failure to balance the books risked inflation, higher interest rates and a plummeting pound.
Her team had also spoken to business groups about reforms to business rates and cuts to VAT to help with the energy crisis, as well as a longer-term review of these taxes.
