The government has introduced a mini budget, referred to as the “growth plan”, in the midst of rising interest rates and skyrocketing inflation. Hoping that this will combat the crisis that UK is experiencing.
In his speech, Chancellor Kwasi Kwarteng stated that “we have reduced stamp duty, allowed companies to keep more of their own money for investments, innovations, and growth, cut income tax and national insurance for millions of workers, and are securing our position in a fiercely competitive global economy with lower corporation tax and personal tax rates”. The chancellor’s statement has been dubbed as the “largest tax-cutting event since 1972” by economists, with the estimated cost of the tax reduction being £45 billion.
In relation to income tax, this would mean that tax for the basic rate payers will be reduced from 20% to 19%, which will be introduced in April 2023. Alongside this, the additional rate of 45% will be abolished, meaning that there are just two tax bands: basic rate (19%) and additional rate (40%). For corporation tax, there will not be an increase from 19% to 25, which was planned for by the previous administrator.
The increase in National Insurance implemented by Boris Johnson’s administration to pay for social care and to clear the backlog in the NHS will be removed on November 6th, as a result of the mini budget.
Mr Kwarteng believes that economic growth was “not as high as it should be”, which in turn “made it harder to pay for public services”, hence leading to higher taxes. Therefore, these changes are made in hope of boosting economic growth.
The chancellor also stated that “Our aim, over the medium term, is to reach a trend rate of growth of 2.5%. And our plan is to expand the supply side of the economy through tax incentives and reform.” He asserted that doing so would result in higher pay, more funding, and possibilities for public services. Mr. Kwarteng continued: “This nation has struggled about redistribution for far too long. The current priority should be growth, not merely tax and spending policy.
Additionally, the chancellor stated in his Commons statement that:
- Duty on beer, wine, cider, and spirits has been frozen.
- Bonus caps for bankers will be eliminated as part of city deregulation.
- Targeted tax savings and planning regulations will result in the creation of new investment zones.
- Plans to expedite large infrastructure projects, such as those involving roads, rail roads, and energy.
- Moves to put pay proposals up for a vote along with stricter requirements for unions intending to strike.
- The government contends that the action would support economic expansion and raise taxes for public services.
- However, some claim the measures pose a risk given the high level of public debt and rising borrowing costs.