Chancellor Kwasi Kwarteng today unveiled his tax-cutting mini-Budget, promising a “new era for Britain” - after 12 years of Tory rule.
He announced £45billion of tax cuts that will largely help the rich and which experts warn could lead to a borrowing, debt spiral.
They include slashing Stamp Duty, cutting Income Tax to 19p and completely abolishing the 45p rate of Income Tax that is paid by around 660,000 of the richest people in Britain.
Treasury officials suggested, on average, those richest people could benefit by £10,000 a year each. And the cap on bankers' bonuses has been scrapped.
The vast spending spree was billed a mini-Budget because there aren't proper forecasts, but it's anything but. It involves an extra £72billion of borrowing this financial year alone - much of it funding a £60bn freeze on energy bills.
It's all designed to boost growth to 2.5% a year - but the Chancellor refused to say when he'll actually achieve this.
Meanwhile, by 2026-27 the tax cuts announced today will leave a £45billion-a-year black hole in the public finances. Here's everything you need to know about today's right-wing ideological announcement at a glance.
Income Tax cut by 1p - and SLASHED by £10k each for richest
The basic rate of Income Tax on earnings over £12,570 will be cut from 20p to 19p in April 2023, one year earlier than expected. It is the first cut to the basic rate in 15 years.
In a surprise announcement, the top 45p "additional rate" of income tax for the richest 1% of Brits has been abolished completely.
Instead of 45p they will pay 40p in every pound they earn over £150,000 a year.
It will help 660,000 people - among the richest in Britain. The average person who benefits from the 45p rate being axed will gain £10,000 a year. It will cost the Treasury just over £2bn a year in the first year - officials say the money lost from the tax is balanced by a direct behavioural response in which people, for example, are paid less through pension and more through income.
Stamp Duty cut
Stamp Duty will be slashed. Under the current rules, no stamp duty is paid on the first £125,000 of any property purchase, before rising to 2% between £125,001 and £250,000.
It’s 5% between £250,001 and £925,000, 10% between £925,001 and £1.5m and 12% above £1.5m.For first time buyers, the threshold is higher at £300,000 - but only if the property costs less than £500,000.
Effective today, the £125k tax-free threshold will double to £250k. The first-time buyer threshold rises from £300k to £425k. And first-time buyers can claim that threshold on any property up to £625k - rather than £500k as the rules are now.
Critics say it will fuel a big rise in house prices while doing little to boost supply.
Bankers’ bonus cap axed
Unlimited bonuses for millionaire bankers will once again be allowed as a cap launched after the 2008 financial crash is axed.
At the moment bosses are not allowed to award more than twice an employee's salary. The Chancellor has scrapped this - in the middle of the worst cost-of-living squeeze in decades.
He claimed: “All the bonus cap did was push up the basic salaries of bakers or drive activity outside Europe. It never capped total remuneration so let’s not sit here and pretend otherwise. We are going to get rid of it.”
Big changes to planning, childcare, and immigration
The mini-Budget announced a series of other reviews, after Liz Truss promised to target tax reviews at families and business rates. She told reporters this week: “We have to look at all tax rates.”
The Chancellor said: "Over the coming weeks, my Cabinet colleagues will update the House on every aspect of our ambitious agenda. Those updates will cover: the planning system, business regulations, childcare, immigration, agricultural productivity and digital infrastructure."
The Sunday Mirror revealed Liz Truss wants to allow the transfer of all personal tax allowances between married couples and civil partners where one earns below the £12,570 tax-free threshold.
Currently a lower earner can “gift” £1,260 of allowance – saving £214 tax after adjustments - but that could rise tenfold.
During the Tory leadership campaign she didn't rule out lowering inheritance tax, despite the fact mainly wealthy estates pay it.
Crackdown on working benefit claimants
A new crackdown will raise the number of hours claimants have to be paid before they can stop "actively" seeking extra work.
Currently, if you’re on Universal Credit, a “light-touch" job search kicks in once you work more than nine hours a week on the national living wage.
It will rise to 12 hours from Monday. Now the government plans to raise it again in January, to 15 hours a week.
It will affect another 120,000 people, who’ll have their benefits sanctioned if they don’t follow the new rules.
National Insurance cut
National Insurance will be cut from November 6, back to the level it was before a Tory hike in April.
The tax on earnings over £12,570 a year will drop from 13.25% back down to 12%. The change had been expected next Spring but was brought forward.
The government said 28million people across the UK will keep an extra £330 a year each, on average, in 2023-24.
But it helps the rich far more than the poor. Today’s cut gives £20,000 earners an extra £93 a year but £50,000 earners £468 a year.
Corporation Tax cut
The statement confirmed Liz Truss’s pledge to cancel a planned rise in corporation tax from 19% to 25% in April 2023.
It was due to bring in more than £17bn a year for the public finances by 2025.
Yet Liz Truss says the move funded by borrowing will “get more businesses going in the UK” while Kwasi Kwarteng says it'll pump £19bn a year back into the wider economy. The Chancellor said: “We will have the lowest rate of corporation tax in the G20."
NHS funding
Funding for the NHS and social care “will be maintained at the same level", Kwasi Kwarteng said. But there were shouts from MPs demanding to know how.
February rises in alcohol duties axed
Planned increases in duty for rates beer, wine, cider spirits have all been cancelled. Chancellor Kwasi Kwarteng said that alcohol duty will freeze from next year, saving Brits 7p on a pint of beer.
Accountancy firm Moore UK responded by saying: "On average, this will save the consumer 7p on a pint of beer, 4p on a pint of cider, 38p on a bottle of wine, & £1.35 on a bottle of spirits."
On reforms, Kwasi Kwarteng added: "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."
Tearing up tax and affordable housing rules for 10 years in 38 special 'zones'
Talks have begun with 38 areas to set up “investment zones" where there will be sweeping tax cuts.
Giving details, Kwasi Kwarteng said: "We will cut taxes for businesses in designated tax sites for 10 years. There will be accelerated tax release for structures and buildings and 100% tax relief on qualifying investments in plants and machinery.
"On purchases of land and buildings for commercial or new residential development there will be no stamp duty to pay whatsoever. On newly occupied business premises there will be no business rates to pay whatsoever.
"If a business hires a new employee in the tax site, then on the first £50,000 they earn the employer will pay no National Insurance whatsoever. That is an unprecedented set of tax incentives for businesses."
Negotiations over how much affordable housing there should be will be axed - with developers instead following “a set percentage”. This will spark fears of fewer affordable homes.
Height restrictions on buildings will also be abolished allowing more tower blocks to go up.
Those 38 low-tax zones in full
Expect fears over runaway capitalism in the investment zones - like the idea of 'freeports' but ramped up even further. The government says the zones won't happen without local consent.
The 38 areas for talks are Blackpool, Bedford, Central Bedfordshire, Cheshire West and Chester, Cornwall, Cumbria, Derbyshire, Dorset, East Yorkshire, Essex, Greater London, Gloucestershire, Greater Manchester, Hull, Kent, Lancashire, Leicestershire, Liverpool, North East Lincolnshire, North Lincolnshire, Norfolk, North of Tyne, North Yorkshire, Nottinghamshire, Plymouth, Somerset, Southampton, Southend-on-Sea, Staffordshire, Stoke-on-Trent, Suffolk, Sunderland, South Yorkshire, Tees Valley, Warwickshire, West England, West Midlands, and West Yorkshire.
Investment zones won't cover the entire counties listed. Those areas are the local authorities in negotiation.
Growth
Kwasi Kwarteng is expected to tear up fiscal rules later this year that say the national debt should be falling by 2024/25 - instead focusing on borrowing for growth.
It's understood he now wants to hit the target "over the medium term" - with officials refusing to name a date.
In a big announcement he also said: “Our aim over the medium term is to reach a trend rate of growth of 2.5%.” This is the level it was pre-2008. But crucially officials refused to say when that 2.5% target would be achieved. Labour MPs jeered as he said “none of this is going to happen overnight.”
After 12 years of Tory government he said: “Growth is not as high as it should be. This has made it harder to pay for public services, requiring taxes to rise.” He said taxes are their highest since the 1940s and “we are determined to break that cycle”.
Cost of energy bill cap
Two weeks ago Liz Truss announced a £2,500 cap on energy bills for typical households over the next two years.
Now the Budget has confirmed how it will be funded - and it slaps tens of billions on the £2.4trillion national debt, with no new windfall tax on oil and gas giants.
Kwasi Kwarteng announced the energy bills help - some of which lasts for two years - will cost £60billion for the first six months alone. But it is still vague beyond that because wholesale prices are so volatile.
He said: "The heavy price of inaction would have been far greater than the cost of these schemes”.
How much will all Liz Truss’s plans cost?
There are no independent OBR forecasts on the economy - prompting outrage. No10 has only promised there will be another forecast by the end of this year.
That means we don’t know the full impact of how Liz Truss’s plans will hit the national debt.
Before today’s mini-Budget, the IFS think tank said the cap on energy bills will cost “well over £100billion” over two years, her tax cuts cost £30bn - and another £18bn is needed to keep public spending in line with inflation.
Planning rules and infrastructure
The Chancellor promised a "new Bill to unpick the complex patchwork of planning restrictions" and to "streamline a whole host" of assessments, appraisals, and consultations to "speed up decision making".
The government today published a list of 138 infrastructure projects prioritised for development in sectors like housing, energy and telecoms, including 86 road improvements, Northern Powerhouse Rail, and Hinkley Point C and Sizewell C.
The government will also sell off more of its "surplus" land to build new homes.
Strikes
The Chancellor confirmed already-known plans to force striking workers to provide a "minimum service level" even if they walk out in critical sectors like the railways.
Mr Kwarteng will also "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.”
£2bn-a-year VAT-free shopping for tourists to UK
The government is introducing VAT-free shopping for overseas visitors.
The digital, rather than paper-based scheme "will enable them to obtain a VAT refund on goods bought in the high street, airports and other departure points and exported from the UK in their personal baggage."
The Treasury added: "A consultation will gather views on the approach and design of the scheme, to be delivered as soon as possible." It's expected to deprive the Treasury of more than £2bn a year by 2026/27.
Other changes
- As announced before, all EU laws will be phased out by 31 December 2023. Officials can't say if this means the end of protections like the 48-hour limit on the working week, or if a UK law will replace it.
- "Accelerate reforms" to pension charge cap, so it will no longer apply to "well-designed performance fees".
Chancellor will "wind down" the Office of Tax Simplification and instead task all his officials to focus on simplifying tax.
"The scheduled change to the rate of the Bank Corporation Tax Surcharge will also be cancelled, keeping the combined rate of tax on profits paid by banks and building societies at 27%. The increase in the Surcharge allowance to £100 million will go ahead as planned."
"2017 and 2021 reforms to the off-payroll working rules (also known as IR35) will be repealed from 6 April 2023. From this date, workers providing their services via an intermediary will once again be responsible for determining their employment status and paying the appropriate amount of tax and National Insurance contributions."
Business tax breaks
Documents say "specified sites in England will benefit from a range of time-limited tax incentives over 10 years. The tax incentives under consideration are:
- Business rates – 100% relief from business rates on newly occupied business premises, and certain existing businesses where they expand in English Investment Zone tax sites. Councils hosting Investment Zones will receive 100% of the business rates growth in designated sites above an agreed baseline for 25 years.
- Enhanced Capital Allowance – 100% first year allowance for companies’ qualifying expenditure on plant and machinery assets for use in tax sites.
- Enhanced Structures and Buildings Allowance – accelerated relief to allow businesses to reduce their taxable profits by 20% of the cost of qualifying non-residential investment per year, relieving 100% of their cost of investment over five years."
How have critics reacted?
The Chancellor was accused of "Robin Hood in reverse" economics leaving struggling families "out in the cold" while rewarding "spivs and speculators".
Frances O’Grady, who heads the TUC, said: “This budget is Robin Hood in reverse. We should be rewarding work, not wealth. But at the first opportunity, Liz Truss is holding down wages and lining the pockets of big corporations and City bankers. The party of pay cuts strikes again.
“We need a very different plan in the full autumn budget to do right by workers. The Chancellor should boost the minimum wage, universal credit and pensions before winter sets in. He should fund pay rises in the public sector that keep up with prices."
Gary Smith, GMB General Secretary, said: “The Chancellor is tough on care workers’ pay rises and soft on bankers’ bonuses – today’s announcement has set in stone an economy that’s rigged against working people.
“Our members want an economic policy that works for all, not just the spivs and speculators who have done very well out of a Tory Government."
Rebecca McDonald, chief economist at the Joseph Rowntree Foundation, said: ""This is a budget that has wilfully ignored families struggling through a cost of living emergency and instead targeted its action at the richest. It leaves those on the lowest incomes out in the cold with no extra help to get them through the winter.
"Families on low incomes can’t wait for the promised benefits of economic growth to trickle down into their pockets. The energy price cap fixes bills at a level already unaffordable for many and was never going to be enough to solve the problem for those on the lowest incomes. With food prices rising more sharply than inflation, and no action today, it will be a bitter winter ahead."
She added that the government had chosen to "turn its back on millions" who are on the lowest incomes - saying they will be forced to cut back on food and energy this winter.
