wasi Kwarteng has unveiled a mini-budget that delivers billions of pound worth of tax cuts – including a surprise move to scrap the 45% top rate of income tax paid by the UK’s wealthiest.
The Chancellor announced sweeping moves intended to rev up the economy in the eagerly-awaited “fiscal event” on Friday morning.
The Government is dubbing it a “growth plan” at a time when the UK faces a cost-of-living crisis, recession, soaring inflation and climbing interest rates.
The Chancellor told MPs the planned rise to corporation tax would be cancelled as he announced the cap on banker bonuses would be scrapped.
He also announced that the basic rate of income tax would be cut to 19p in the pound from April 2023. And he said the 45% higher rate of income tax will be “abolished”.
Mr Kwarteng said his economic vision would “turn the vicious cycle of stagnation into a virtuous cycle of growth”.
But shadow chancellor Rachel Reeves said the strategy amounts to an “admission of 12 years of economic failure” under successive Conservative governments.
The Labour MP described the Prime Minister and Mr Kwarteng as “two desperate gamblers in a casino chasing a losing run”.
Former US Treasury chief criticises mini budget
A former US Treasury secretary has sharply criticised Chancellor Kwasi Kwarteng’s economic policies, warning the pound may sink past parity with the US dollar.
Larry Summers told Bloomberg: “It makes me very sorry to say, but I think the UK is behaving a bit like an emerging market turning itself into a submerging market…
“There’s nothing in the pattern of market response in the UK that suggests anything but fear rather than confidence in the policy approaches being taken.
“It would not surprise me if the pound eventually gets below a dollar if the current policy path is maintained.”
This is a good day for the UK, says Chancellor
Kwasi Kwarteng said Friday was a “very good day for the UK”.
The Chancellor told reporters in Kent: “I think it’s a very good day for the UK, because we’ve got a growth plan.
“We’re very, very upbeat about what we can do as a country. We were facing low growth and we want a high-growth economy and that’s what this morning was all about.”
Pressed on the fairness of tax cuts across the board, he said: “The Prime Minister campaigned for the leadership on the basis that we were going to reduce taxes and that’s exactly what we’ve done.”
Market response to budget unprecedented, says former head of Treasury
Lord Nick Macpherson, the former head of the Treasury, said he would not remember a fiscal intervention triggering such a strong response from the market.
He said: “I worked on some 60 fiscal events over 31 years. I can’t remember any generating as strong a market reaction as to today’s. The £ is currently down over 3% v $, 1.8% v € and 2.5% v ¥. And the cost of borrowing up 40bp at short end and 20bp at long end.”
Nearly two-thirds believe Kwarteng’s tax cuts will benefit the rich more
Nearly two thirds of people think Kwasi Kwarteng’s tax cuts will benefit the rich more, according to a YouGov survey.
Of around 9,400 adults surveyed, 63% said the changes will help wealthier people more, 3% said poorer people and 9% think both groups will benefit equally.
More than half of respondents (52%) said the Chancellor’s measures will be not very or not at all effective at growing the British economy, while only 19% replied very or fairly effective.
Asked about the impact on people’s lives, 28% said they will end up worse off, 34% said the changes will make no difference, and 19% said they will end up better off.
Kwarteng rejects suggestion that his economic plan is ‘gamble’
Kwasi Kwarteng rejected the suggestion his economic announcement in Parliament on Friday was “a gamble”.
During a visit to Berkeley Modular Housing Factory in Ebbsfleet, Kent on Friday, he told reporters: “It’s not a gamble.
“What is a gamble is thinking that you can keep raising taxes and getting prosperity, which was clearly not working.
“We cannot have a tax system where you are getting a 70-year high, so the last time we had tax rates at this level before my tax cuts was actually before her late majesty had acceded to the throne.
“That was completely unsustainable and that’s why I’m delighted to have been able to reduce taxes across the piste this morning.”
Watch: Chancellor’s mini budget at a glance
Former Tory minister brands tax cuts ‘wrong’
Conservative former cabinet minister Julian Smith has said the Chancellor’s decision to hand a “huge” tax cut to the wealthy was “wrong”.
“In a statement with many positive enterprise measures this huge tax cut for the very rich at a time of national crisis and real fear and anxiety amongst low-income workers and citizens is wrong,” he tweeted.
Govt ‘totally out of touch with public’, says Davey
Liberal Democrats leader Sir Ed Davey said the Chancellor’s mini budget address demonstrated that the Government was “totally out of touch” with the general public.
Speaking on College Green on Friday, Sir Ed said the fact the pound had dipped to a 37-year low against the dollar during Kwasi Kwarteng’s speech to the House of Commons also indicated that global investors were “very worried” about the Government’s new economic strategy.
He said: “This budget shows how the Conservatives are totally out of touch with people. Millions of families and pensioners are struggling with soaring bills on energy, on food, on mortgages, and it looks like the Conservatives either don’t get it or don’t care.
“We needed a plan to help people, and this isn’t a plan for our economy.”
He added: “It looks to me like investors around the world are very worried about this economic package, whether it’s the currency markets with the pound falling, whether it’s the cost of Government borrowing, which has gone up on the back of this, I think people are signalling no confidence in the Conservatives.
“So, it’s not just members of the public who are struggling who feel that the Government is out of touch, it’s international investors also.”
Drinks industry welcomes duty freeze
A planned rise in alcohol duty was among the measures put on ice by the Chancellor in the Commons on Friday.
In a mini-budget that put tax cuts front and centre, Kwasi Kwarteng announced that an increase in duty rates for beer, cider, wine and spirits would be cancelled.
Alongside an 18-month transitional measure for wine duty, he also said he would extend draught relief to smaller kegs to help support smaller breweries.
The Scotch Whisky Association praised the move by the Chancellor, saying the Government had “delivered”.
“The duty freeze will not only support our sector, but the hospitality industry and the wider economy,” it said.
IFS: Chancellor is ‘betting the house’ on risky high borrowing strategy
The Institute for Fiscal Studies (IFS) think tank has analysed the Chancellor’s statement and said he is “betting the house” on a risky strategy.
Director Paul Johnson said: “Injecting demand into this high-inflation economy leaves the government pulling in the exact opposite direction to the Bank of England, who are likely to raise rates in response.
“Early signs are that the markets – who will have to lend the money required to plug the gap in the government’s fiscal plans – aren’t impressed. This is worrying”.
He said Cabinet members could be forgiven for having whiplash, such is the sudden change of the Government’s change of economic policy.
“Mr Kwarteng is not just gambling on a new strategy, he is betting the house,” he said.