Kwasi Kwarteng Tears Through UK Tax System In Radical Fiscal Event
Kwasi Kwarteng has set out his plans to overhaul the economy (Parliament TV)
Chancellor Kwasi Kwarteng has announced a range of sweeping cuts to taxes as he battles to resuscitate the UK's flagging economy.
Kwarteng used the highly anticipated fiscal event to set out a new plan for the economy, with a pledge to get the trend rate to 2.5 per cent, but warned "none of this is going to happen overnight".
The Chancellor's major intervention in the economy included a series of sweeping tax reforms, including cutting the top rate of income tax and slashing Stamp Duty rates, alongside reversing the planned National Insurance Contribution rise.
The tax cuts are expected to come at a cost of £45bn plus Kwarteng confirmed the not-previously costed energy package would cost around £60bn.
He also confirmed reports that the cap on bankers' bonuses will be scrapped, insisting that the measure had damaged the financial services sector and diverted spending from London to other major financial capitals including Paris and New York.
"A strong UK economy has always depended on a strong financial services sector. We need global banks to create jobs here, invest here and pay taxes here in London, not in Paris, not in Frankfurt and not in New York," he said.
"All the bonus cap did was to push up the basic salaries of bankers or drive activity outside Europe. It never capped total remuneration."
In a major change to benefit rules, Kwarteng announced plans to slash people's benefits if they fail to "fulfill their job commitments" as he said there were more job vacancies than unemployed people.
"With more vacancies than unemployed people to fill them, we need to encourage more people to join the labour market. We will make work pay by reducing people's benefits if they don't fulfill their job search commitments," he said.
"We will provide extra support for unemployed over-50s and will ask around 120,000 more people on Universal Credit to take active steps to seek more and better paid work or face having their benefit cuts."
Speaking to MPs, Kwarteng said the change was the first step in boosting growth in the UK economy.
"Growth is not as high as it needs to be, which has made it harder to pay for public services, requiring taxes to rise," he said.
"We need a new approach for a new era, focused on growth... Our plan is to expand the supply side of the economy through tax incentives and reform. That is how we will deliver higher wages, greater opportunities and crucially fund public services now and into the future."
The Chancellor also pressed ahead with pre-briefed plans to cancel the proposed rise in Corporation Tax to 25 per cent from next year, meaning it will remain at its current rate of 19 per cent, saying the change would "plough almost £19bn a year back into the economy".
In a further major announcement, Kwarteng revealed a signficant cut to Stamp Duty, saying the current rate on which people are exempt from the tax would double to £250,000, while first time buyers would see their threshold increased to £425,000.
In a significant change to personal taxes, Kwarteng announced he was abolishing the 45 per cent top rate of tax for those earning over £150,000 from 2023, because he claimed the higher rate was damaging Britian's competitiveness.
"At 45 per cent, its currently higher than the headline top rate in G7 countries like the US and Italy. And it is higher even than social democracies like Norway. But I’m not going to cut the additional rate of tax today, I’m going to abolish it altogether.
He added: "From April 2023, we will have a single higher rate of income tax of 40 per cent. 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 whole country."
Responding to the announcements, Shadow Chancellor Rachel Reeves said working people would be left to "pick up the bill" and accused the government of a "vicious circle of stagnation".
"The Chancellor has confirmed the costs of the energy price cap will be funded by borrowing, leaving the eye-watering windfall profits of the energy giants untaxed," she said.
"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."
She took aim at the government's refusal to publish independent economic forecasts alongside the fiscal changes, saying the plans were an "admission of economic failure".
"It is a budget without figures, a menu without prices... What has the Chancellor got to hide? This statement is an admission of 12 years of economic failure. And now here we are, one last throw of the dice, one last claim that these ministers will be different."
Prime Minister Liz Truss promised sweeping tax cuts throughout her leadership pitch, claiming that reducing the tax burden on households could help them deal with the worst of the cost-of-living crisis.
Kwarteng also announced that he has opened discussions with 38 local and mayoral combined authorities across England to launch new Investment Zones which will offer time-limited tax cuts for businesses in a bid to boost growth.
The new zones, which will include the West Midlands, Hull and the Tees Valley, will offer relaxed planning rules to help speed up house building and infrastructure projects, where the government has claimed the UK is flagging behind its international competitors.
Ahead of Kwarteng's statement, the government confirmed the 1.25 per cent increase in National Insurance will be reversed from 6 November, with the planned introduction of the Health and Social Care Levy in April 2023 also scrapped.
The Treasury has estimated the change will save 28 million taxpayers around £330 next year, while around 920,000 businesses will save around £10,000 on average due to the reversal.
But ministers have insisted the £13bn in additional funding it would have raised for the health service will be replaced by general taxation.
The statement follows a Bank of England decision to raise interest rates to 2.25 per cent in response to saoring inflation rates which are forecast to hit 11 per cent – their highest in 40 years.
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