UK Chancellor Quasi Quarteng has played a big political gamble with a mini-budget aimed at bringing the British economy back to life, with a £45bn tax cut, with a 45p additional tax rate for the highest earners includes terminating.
This package will delight many for the City of London and the wealthy. This removes the 45p rate applicable to income over £150,000. Quarteng confirmed that it is eliminating the limit on bankers’ bonuses.
The mini-budget pushed borrowing costs sharply higher and sent sterling below $1.11 to a 37-year low against the dollar.
Quarteng said his mini-budget would spur growth, but acknowledged that many of his measures would be unpopular; His decision to massively increase borrowing puts his party’s claim to fiscal responsibility at risk.
The Treasury said it would ask the Debt Management Office to raise an additional £72bn in the current fiscal year, raising the total from £161bn in April to £234bn in September.
The additional borrowing is far more expensive for the government than ever before, with the two-year cost of borrowing rising to 3.9 percent from 0.4 percent a year ago.
The chancellor is betting Conservative political fortunes on the belief that radical tax cuts and regulation could push Britain’s sluggish growth rate back to its pre-financial crisis average of 2.5 per cent.
“It’s a new approach to a new era focused on development,” Quarteng told lawmakers to a chorus of Tory cheers and cheers from the Labor bench.
The fleet of tax cuts drew comparisons with Nigel Lawson’s 1988 budget. The basic rate of income tax will be reduced from 20p to 19p in the pound next April, national insurance was cut, stamp duty was lowered to help first-time buyers and a planned corporation tax hike would be abolished.
But unlike Margaret Thatcher’s chancellor, Quarteng will borrow tens of billions of pounds to fund his plans, boosting demand at a time when the Bank of England is raising interest rates to bring inflation under control.
The combined cost of tax cuts by 2026-27 would be around £45bn. Quarteng told lawmakers in a statement to the House of Commons that he aimed to “turn the vicious cycle of stagnation into a good cycle of development”.
The chancellor’s package combined tax cuts with a series of supply-side reforms, which he acknowledged could become unpopular in the short term; He insisted that he would be “shamelessly” pro-development.
However, he acknowledged that the transformation of Britain’s growth prospects was “not going to happen overnight”. For the new government of Liz Truss, timing is critical as elections are expected to be held in 2024.
Fearing criticism that he was giving undue aid to the wealthy, Quarteng reminded lawmakers that the government was intervening to curb domestic and commercial energy bills; He said the first six months would cost £60bn.
Quarteng’s decision to lift a cap on bankers’ bonuses is intended to make the City of London more competitive, but leaves the Conservatives open to Labor’s claims that it is still “the party of the rich”.
Meanwhile, the green lobby is furious over promises to lift restrictions on shale gas fracking and changes to environmental legislation to speed up infrastructure projects.
His borrowing spree – coming at a time when the cost of servicing government debt is rising sharply – is seen by Labor leader Sir Keir Starmer as a pivotal moment: Starmer wants to claim fiscal responsibility at the next election. Is.
In other measures announced by Quarteng, corporation tax rates will remain at 19 per cent, but he will retain the 8 per cent charge on bank profits, which was to be reduced next year.
The government’s fiscal rules, which stipulate that debt must fall as a share of GDP within three years, will be reviewed. “In due course we will publish a medium-term financial plan,” Quarteng said.