Kwasi Kwarteng says the government will never allow families to face high energy bills caused by Vladimir Putin’s war in Ukraine, telling people “help is coming” as the cost of living rises.
The chancellor says his statement will also provide the “biggest package in generations” of tax cuts to send a clear signal that economic growth is the government’s priority.
Aubrey Allegretti, political reporter: Kwarteng begins by blaming inflation and escalating energy bills directly on Putin.Read:Number of non-Europeans moving to UK for work soars as EU migrants plummet
After criticism of the Conservatives over the summer for months of inaction while the leadership contest continues, the chancellor is trying to counter that narrative by claiming that the new prime minister, Liz Truss, acted “too quickly”.
“People need to know that help is coming, that help is already coming” is meant to be a rallying cry of reassurance – yet it upsets expectations by reminding people that energy markets are “volatile.”
Income tax cuts
Kwarteng announces that the additional 45% income tax range will be eliminated in full
The highest percentage will remain at 40%
The basic rate of income tax will be reduced from April 2023 from 20% to 19%
The chancellor says “we will not apologize” for focusing on economic growth.Read:Family pay tribute to ‘beautiful, happy, healthy little boy’ found dead in pond
“For too long in this country, we have been bogged down in a battle over redistribution. Now, we need to focus on growth, not just how we tax and spend.”
Aubrey Allegretti: For 48 hours, the Treasury was outraged by news of the planned stamp duty cut and had crippled the home-buying market.
It was conceivable that it could be a “rabbit out of the hat” – a big surprise announcement that would go straight to the top of the news agenda.
However, this could have been easily bypassed with a move that Kwarteng was able to keep under wraps before easily announcing it with the biggest fanfare of the statement on his part – 45% cancelled. Additional rate range for income tax.
This will feed criticism that his mini-budget greatly benefits those who are better off, deepening the divide among Tory MPs.
Kwarteng asserts that the bonus cap for bankers will be removed, in order to “reaffirm” the UK’s position as a leading financial centre.Read:Energy bills: Britons urged to pull together to prevent ‘cost of lives crisis’ | Energy bills
He says the bounty was a failure, all it did was raise the bankers’ base salaries or push them out of the UK to Europe.
Aubrey Allegretti: Once again, Kwarteng walks a fine line between the various factions of the Parliamentary Conservative Party. He knows that raising the banker’s bonus ceiling will come down like a cup of sick cold with some colleagues – especially those from the “red wall” benches.
But given the news of the move, it is not as likely to spark outrage as if it was announced today for the first time.
Business tax cuts
Kwarteng says next year’s corporate tax increase will be scrapped from 19% to 25%. It will remain at 19%. “We will have the lowest corporate tax rate in the G-20.”
Reversing the tax increase would return £19 billion annually to the economy
Kwarteng says companies will be able to use this to “reinvest, create jobs, raise wages, or pay dividends that support our pensions.”
The chancellor says every additional business tax is ultimately passed on to families through higher prices, lower wages or lower returns on savings.
Aubrey Allegretti: This was one of two major actions that were expected (along with a reduced National Insurance increase) – given that Truss pledged it early in the driving contest.
They will be welcomed by business groups, but those companies that have not made a profit or have been forced to close will surely pour contempt over how much they are helping them.
Stamp duty and other tax changes
Stamp duties will be reduced for property buyers in England and Northern Ireland, as was rumored in media leaks this week. The chancellor says this is a “permanent cutoff” in effect as of today.
In the current system, there is no stamp duty to be paid on the first £125,000 of the property value. It will double to £250,000
Elsewhere, the advisor says he will end the Office of Tax Simplification (OTS) and ask each administration to focus on this instead. Other actions to reduce or reform tax bases include:
The IR35 rules – which apply to contractors – will be simplified to remove “unnecessary complexity and cost” for businesses
Planned tariff increases on beer, wine and cider will be cancelled
Aubrey Allegretti: It is well known (and many Conservative MPs believe) that the UK has an incredibly complex tax system – so his frank assessment that it “needs to be simpler” will do well.
The abolition of OTS and its introduction into the “heart of government” will also be welcomed by colleagues, but details on how this will happen to ensure that the work is not only forgotten and included in other priorities will be key.
Expect traditional criticism of the “champagne corkscrew that popped into town” from Labor as Kwarteng asserts that a planned increase in beer, spirits and wine will not go ahead – after bankers’ bonuses are announced.
Moves like this make this “mini-budget” look more and more like an actual budget.
growth and public finance
Kwarteng says the government will expand the supply side of the economy with tax cuts to target economic growth of 2.5% annually.
The chancellor says it will turn “a vicious cycle of recession into a benign growth cycle,” though he cautions that “none of this will happen overnight.”
Kwarteng says the government will publish the costs of the measures. The Office of Budget Responsibility is also committed to publishing full economic and financial forecasts before the end of the year.
The government’s energy support plan is expected to cost £60 billion for the six months of October.
Aubrey Allegretti: Kwarteng seeks to turn the past 12 years of conservative economic wisdom on its head and present the government as new and radical – rather than hanging on the temples of the latter.
He makes his central point that “growth is not as large as it should be”, arguing that this only leads to Less money to fund public services, higher taxes, etc..
“We need a new approach for a new age” should be seen as nothing less than an attempt to reinvent the Conservatives and present them as a party of change – to avoid blaming past mistakes. (Although Truss has, of course, served in the previous three Conservative governments.)
Kwarteng says the government will introduce measures to simplify regulations and remove EU-derived laws.
The chancellor says the list of major infrastructure projects will be a “priority for acceleration” today.
Aubrey Allegretti: To avoid accusations that the government has reneged on Theresa May’s long-held mantra, there is “no magic money tree”, Kwarteng put a figure close to £60 billion for the projected value of energy subsidies over the next six months.
He got a somewhat muted reception from the Conservative party seats to planning reforms – a thorny issue for the Conservatives. But by appealing to their traditional instincts for deregulation, Kwarteng was better received by MPs when he said: “We are getting out of the way to build Britain”.
The chancellor says the government will enact legislation to deal with “hardened trade unions” from shutting down key infrastructure through strikes.
He said the laws would require unions to submit wage offers to a vote of members, to ensure that strikes could only be called after wage talks had truly collapsed.
Aubrey Allegretti: Looming across the country this winter is a raft of strikes seeking to draw attention to paltry wage offers for public service workers – including on rail services during the first and last day of next month’s Conservative Party conference.
Any threats to curtail the powers of trade unions will make the Tory seats behind him bitter.
The chancellor assures that nearly 40 investment zones will be created with corporate tax exemptions.
The government is working with regions including the Tees Valley, the West Midlands, Norfolk and western England to create investment areas, he says.
“If we really want to rise to the top, we have to unleash the power of the private sector.”
Aubrey Allegretti: It was a phrase outlining the government’s mission – but “compromise” only gets a fleeting nod from Kwarteng. He praises them and seeks to use them to defend today’s swing tax cuts.
Investment zones are presented as a way to promote development and growth in those areas where environmental planning and regulations only increase costs and can alienate investors.