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British chancellor Kwasi Kwarteng announces tax cuts in bid to boost economic growth

Chancellor of the Exchequer Kwasi Kwarteng leaves 11 Downing Street to make his way to the Treasury Department to deliver his mini-budget. Picture by Aaron Chown/PA Wire

The British government has this morning announced a number of tax cuts in a bid to stimulate growth as the cost of living crisis continues to hit the economy.

Chancellor Kwasi Kwarteng confirmed a recent rise in National Insurance - a tax people pay in their earnings - will be reversed from November 6.

Former chancellor Rishi Sunak had increased National Insurance by 1.25p in the pound in April this year - saying the money was needed to fund health and social care.

Mr Kwarteng said funding will now come from general taxation.

The chancellor said the basic rate of income tax will be cut to 19p in April 2023.

"That means a tax cut for over 31m people in just a few months’ time," Mr Kwarteng said. "That means we will have one of the most competitive and pro-growth income tax systems in the world."

He said the 45% higher rate of income tax will be “abolished”. From April, the 629,000 earners in the UK getting more than £150,000 a year will no longer pay the top income tax rate of 45% and will instead pay the 40% applicable to those on over £50,271.

The chancellor said the UK's additional rate of income tax is higher than the headline top rate in other G7 countries, telling MPs: "I'm not going to cut the additional rate of tax today. I'm going to abolish it altogether.

"From April 2023 we will have a single higher rate of income tax of 40%. This will simplify the tax system and make Britain more competitive. It will reward enterprise and work. It will incentivise growth. It will benefit the whole economy and the whole country."

The chancellor also confirmed a cut in stamp duty, telling the House of Commons: "Home ownership is the most common route for people to own an asset, giving them a stake in the success of our economy and society.

"So, to support growth, increase confidence and help families aspiring to own their own home, I can announce that we are cutting stamp duty. In the current system, there is no stamp duty to pay on the first £125,000 of a property's value. We are doubling that - to £250,000."

Mr Kwarteng also said the stamp duty threshold for first-time buyers would be increased from £300,000 to £425,000.

He added: "We're going to increase the value of the property on which first-time buyers can claim relief, from £500,000 to £625,000.

"The steps we've taken today mean 200,000 more people will be taken out of paying stamp duty altogether. This is a permanent cut to stamp duty, effective from today."

The chancellor announced plans for new low tax "investment zones".

Kwasi Kwarteng said: "To support growth right across the country, we need to go further, with targeted action in local areas.

"So, today, I can announce the creation of new investment zones. We will liberalise planning rules in specified agreed sites, releasing land and accelerating development.

"We will cut taxes. For businesses in designated tax sites, for 10 years, there will be: Accelerated tax reliefs for structures and buildings. And 100% tax relief on qualifying investments in plant and machinery."

He added the government was in early discussions with the devolved administration at Stormont to establish the new zones, as well as regions across England the devolved administrations in Scotland and Wales.

"If we really want to level up, we have to unleash the power of the private sector," Mr Kwarteng added.

A cap on bankers' bonuses will also be lifted, Kwasi Kwarteng told the House of Commons. The cap was introduced by the EU after the 2008 financial crisis as part of measures intended to insure against the weaknesses that led to the crash and expensive taxpayer bailouts.

The chancellor was heckled by opposition MPs and cheered by his own side as he confirmed plans to get rid of the cap on bankers' bonuses.

He told the Commons: "A strong UK economy has always depended on a strong financial services sector. We need global banks to create jobs here, invest in London, and pay taxes in London, not Paris, not Frankfurt, not New York. All the bonus cap did was to push up the basic salaries of bankers, or drive activity outside Europe.

"It never capped total remuneration, so let's not sit here and pretend otherwise. So we're going to get rid of it.

"And to reaffirm the UK's status as the world's financial services centre, I will set out an ambitious package of regulatory reforms later in the autumn."

The government will legislate to require trade unions to put pay offers to a member vote so strikes can only be called once negotiations have fully broken down, the chancellor said.

Mr Kwarteng said it is "simply unacceptable" for strike action to disrupt lives, telling MPs the government will seek to introduce minimum service levels before adding: "We will 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."

Mr Kwarteng said he would "accelerate reforms" to the pension charge cap so it will no longer apply to "well-designed performance fees" as well as saying he would introduce VAT-free shopping for overseas visitors.

Responding to the chancellor's statement on the economy, Labour shadow chancellor Rachel Reeves said Kwasi Kwarteng had provided a "comprehensive demolition" of the last 12 years of Tory government.

Ms Reeves said: "The Chancellor has confirmed that the costs of the energy price cap will be funded by borrowing, leaving the eye-watering windfall profits of the energy giants untaxed.

"The oil and gas producers will be toasting the Chancellor in the boardrooms as we speak while working people are left to pick up the bill.

"Borrowing higher than it needs to be, just as interest rates rise. And yet the chancellor refuses to allow independent economic forecasts to be published, which would show the impact of this borrowing on our public finances and growth, and on inflation.

"It is a budget without figures, a menu without prices. What has the chancellor got to hide?"

Stormont Finance Minister Conor Murphy said the chancellor’s statement delivered for the wealthy rather than ordinary workers, families and small businesses.

Mr Murphy said: “In this cost of living crisis it beggars belief that the chancellor has chosen to announce tax breaks for the super-wealthy instead of supporting the working poor who are struggling to heat their homes and feed their families.

“What we needed today was a tax break for small businesses struggling with rising costs, and an increase in funding for public services and support for public sector workers who carried us through the pandemic. Instead, the British chancellor has announced tax breaks for the super-wealthy and no extra funding for public services."

The pound dropped to a fresh 37-year-low against the dollar as the chancellor unveiled his "growth plan".

Sterling declined by 0.89% to 1.115 US dollars, meaning it has shed 17% against the US currency so far this year.

It comes after the Bank of England launched another 0.5 percentage point interest rate hike to 2.25% yesterday and warned the UK could already be in a recession.

 

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