A summary of today's developments
The markets gave a scathing verdict to the chancellor Kwasi Kwarteng’s unfunded tax cuts and extra spending. Having dropped through $1.10 this afternoon, sterling continued to crash all the way down to a new 37-year low of $1.09. The pound has lost 3.5 cents today, cratering by 3% – on track for its worst day since the market panic of March 2020 when the pandemic hit.
Kwarteng announced this morning that the basic rate of income tax would be cut to 19p and the 45% top rate of tax for higher earners abolished except for in Scotland.
The threshold before stamp duty is paid in England and Northern Ireland is raised to £250,000 while for first-time buyers it will be £425,000
The cap on bankers’ bonuses is lifted and a planned rise in corporation tax is abandoned.
An increase in national insurance is reversed and low-tax investment zones will be set up across the UK.
The shadow chancellor, Rachel Reeves, said the measures “will reward the already wealthy” and will not help those struggling most with the cost of living crisis.
Julian Smith, the former Tory chief whip and former Northern Ireland secretary, said it was wrong for the mini-budget to give such a large tax cut to the very rich.
The Institute for Fiscal Studies says the government thinks the tax cut for higher earners will only cost £2bn because, once it takes effect, higher earners will abandon some of the wheezes they have been using to cut their tax liability. The government might be right, the IFS says. But it also says there is a risk the tax cut could cost the exchequer a lot more.
The former US treasury secretary Lawrence Summers blasted the economic policies being adopted by Liz Truss and warned that the pound could tumble below parity against the US dollar.
Updated
Kwasi Kwarteng has been accused of delivering a reckless mini-budget for the rich after his £45bn tax-cutting package sent the pound crashing to its lowest level against the dollar in 37 years.
In a high-risk strategy designed to revive Britain’s stagnant economy, the new chancellor announced more than £400bn of extra borrowing over the coming years to fund the biggest giveaway since Tony Barber’s ill-fated 1972 budget.
Kwarteng said tax cuts worth more than £55,000 annually to someone earning £1m a year were part of a new direction for the economy and were designed to help boost growth to 2.5% a year. Some Labour MPs described them as a “class war”.
