Kwasi Kwarteng will tomorrow deliver a £30billion tax-cutting mini-budget which helps the rich and puts strain on the poor - despite warnings that it's a 'gamble at best'.
The Chancellor of the Exchequer will deliver on Prime Minister Liz Truss' pledges to reverse April's National Insurance hikes in a matter of weeks, and scrap a planned hike in corporation tax in the Spring of 2023.
He will also set out a multi-billion pound cost of energy support plan, and could slash things like Stamp Duty and limits on bankers' bonuses.
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The Mirror reports that the pair say they are 'unashamed' about fuelling the growth of the economy despite it assisting the rich more than it does the poor - with further fears that it will help worsen inflation. The Bank of England has already hiked interest rates to 2.25 per cent - indicating that they believe the economy is already in recession.
Meanwhile, Ms Truss and Mr Kwarteng will launch a brand-new crackdown on benefit claimants, forcing more people who already have a job to frivolously search for extra hours here and there. The IFS think tank has previously warned the Government that putting public finances on an 'unsustainable path' with borrowing expected to hit £100billion a year even when the energy support package comes to a close.
With debts potentially mounting on an 'ever-rising path', the IFS dubbed the Government's claim that reducing tax rates would lead to sustained economic growth as a 'gamble at best'. A cabinet ally of Ms Truss in Simon Clarke also admitted yesterday that tax cuts are not 'risk free'.
Yet the Government is refusing to produce official forecasts of how the spending will impact the economy in total.
Here’s all you need to know about tomorrow’s ‘fiscal event’, and what’s been predicted so far.
What time is the mini-Budget?
Unusually, Chancellor Kwasi Kwarteng will deliver his statement in the Commons at 9.30am on Friday. It would be at 12.30pm on a Wednesday - but dates were changed by the Queen’s death, and a UN summit in New York.
Why is it called a mini-Budget?
Liz Truss ’ allies are calling the statement a 'fiscal event' or 'mini-budget’ - not a Budget - for two reasons. Firstly, it’s not the full-blown annual Budget that changes booze and cigarette taxes, raises the minimum wage and so on. A full-on Budget could come before Christmas.
Secondly, Liz Truss refusing to let the Office for Budget Responsibility (OBR) produce forecasts of how her plans will affect public spending and borrowing. That's very controversial because she plans a borrowing bonanza - as much as £150bn - to fund her plan to cap average annual energy bills at £2,500 for two years.
That’s not to mention her tax cuts, which deprive public services of £30bn they would have otherwise got. Paul Johnson, the director of the Institute for Fiscal Studies, also said earlier this week that existing OBR forecasts - published in March - are now 'hopelessly out of date'.
All the things that are likely to be in the mini-Budget
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 per cent back down to 12 per cent. 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. The respected Institute for Fiscal Studies said the change will give the poorest tenth just £7.66 a year. By comparison the richest tenth gain £1,801.89, once the change in employers’ contributions is included.
Corporation Tax cut -
Liz Truss has promised to cancel ex-Chancellor Rishi Sunak's planned rise in corporation tax from 19 per cent to 25 per cent in April 2023. It had been due to bring in more than £17bn a year for the public finances by 2025. But she says cutting tax will fuel growth.
Ms Truss told reporters in New York: “We want lower, simpler taxes in the UK to incentivise investment, to get more businesses going in the UK."
Stamp Duty cut -
Liz Truss is poised to slash Stamp Duty in her first mini-Budget as part of efforts to kickstart economic growth. The idea was intended as the "rabbit out of the hat" in the mini-Budget, Whitehall sources told the Times.
Under the current rules, no stamp duty is paid on the first £125,000 of any property purchase, before rising to 2 per cent between £125,001 and £250,000. It’s 5 per cent between £250,001 and £925,000, 10 per cent between £925,001 and £1.5m and 12 per cent above £1.5m.
For first time buyers, the threshold is higher at £300,000 - but only if the property costs less than £500,000. Critics say it will fuel a big rise in house prices while doing little to boost supply.
Other tax cuts -
The mini-Budget is tipped to announce a series of tax reviews, something Liz Truss promised to target at families and business rates. She told reporters this week: “We have to look at all tax rates.”
The Sunday Mirror revealed she 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. And reports earlier this year suggested she wanted the 40p Income Tax rate threshold to rise from £50,270 to £80,000 - handing wealthy earners a tax cut of nearly £6,000.
An income tax cut - but only later -
Reports suggest Rishi Sunak's plan to cut income tax in 2024 could be brought forward, but that this would only happen in a 'full-fat' Budget later this winter. Treasury sources have declined to comment.
Lifting the cap on bankers’ bonuses -
Unlimited bonuses for millionaire bankers could once again be permitted as the new Tory government attempts to woo the City. At the moment bosses are not allowed to award more than twice an employee's salary. The Chancellor has looked at axing this.
Banking chiefs complain that the cap - introduced as a result of the 2008 financial crash - is driving up salaries, making the UK less attractive than the US or Asia. But the move has sparked outrage, with the government accused of 'boosting bumper bonuses for those as the top' as millions struggle with the harshest wage squeeze in modern history.
Cracking down on benefit claimants -
Tens of thousands of part-time workers could see their benefits slashed if they don't look for more work. Kwasi Kwarteng is planning a new crackdown that will raise the number of hours people have to work before they can stop 'actively' seeking a job.
The current threshold for a 'light-touch' arrangement to kick in is 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.
People will risk having their benefits sanctioned if they fail to take active steps to boost their earnings and meet regularly with a work coach.
Labour said it was 'staggering' to suggest poor growth was due to low-paid people being lazy - while boosting growth by paying bankers more money. Meanwhile there seems little prospect of benefits being raised, despite pleas to bring them in line with 10 per cent inflation. 72 organisations also backed a letter from Carers UK urging a boost for carers.
Rebecca McDonald of Joseph Rowntree Foundation warned the poorest fifth of households will still see a £450 shortfall this winter.
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, but she refused to set out how it will be funded and has ruled out an extra windfall tax on oil and gas giants. That means it will be slapped on the £2.4tn national debt.
The government has said it will set out some of the costing at the 'fiscal event', but it will be vague beyond three months because wholesale prices are so volatile. And there will be no proper OBR forecast on the economy.
No10 has only promised there will be another forecast by the end of this year.
The IFS think tank says 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. Meanwhile there’s confusion about what the energy bill cap actually means.
Uswitch research says 38 per cent of households wrongly think their bills won’t go any higher than £2,500. That number is just for average bills - the more you spend, the more you pay.
Going for growth -
According to the Financial Times, Kwasi Kwarteng has told officials they needed to focus on a 2.5 per cent rise in growth - the average before the financial crash in 2008. He could also tear up fiscal rules that say the national debt should be falling by 2024/25.
Tearing up tax, green and housing rules in special 'zones' -
The mini-Budget is expected to announce 'special investment zones' in a string of areas across the UK. It’s reported the areas will be able to slash business taxes and tear up planning rules that restrict tall buildings to get firms investing.
Expect fears over runaway capitalism in the investment zones - like the idea of 'freeports' but ramped up even further.
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