British Chancellor Kwasi Kwarteng Hails “New Era”!

Chancellor of the Exchequer Kwasi Kwarteng unveiled the highest tax cuts in 50 years and hailed it a "new era" for the UK economy.

Income tax and the stamp duty on home purchases will be cut and planned rises in business taxes have been scrapped. It comes as the Bank of England warns the UK may already be in recession. The pound sank to a 37-year low against the dollar as the chancellor gave his statement. The basic rate of income tax was reduced from 45% to 40% but u-turned under pressure—and he was thrown under the bus by Truss.

Other measures include:

• The threshold people in England and Northern Ireland start paying stamp duty on home purchases will rise to £250,000

• For first-time buyers the threshold will rise to £425,000 and the value of the property they can claim relief will increase from £500,000 to £625,000

• Planned increases in the duty rates for beer, cider, wine and spirits will be axed

• The cap on bankers' bonuses will be lifted

• New investment zones, where business will benefit from tax cuts and planning rules will be relaxed to encourage house building, will be established

• Planned corporation tax increase from 19% to 25% is scrapped.

• Reversed the rise in National Insurance payments 

 

The total cost of the permanent tax cuts announced by the chancellor is estimated at almost £45bn by 2027. The Government borrowing will increase by £72bn as a result. The changes to income tax do not apply in Scotland but cuts to corporation tax and national insurance are UK-wide.

The independent Institute for Fiscal Studies, said the statement amounted to the biggest tax cuts since the 1972 Budget, with the cuts constituting 50% bigger than had been expected.

The government normally releases an independent forecast of how major tax changes will impact the economy, but Mr Kwarteng has opted not to do this, as his statement is not technically a Budget. However, Mr Kwarteng promised the Office for Budget Responsibility would publish a full economic forecast before the end of the year, with a second to follow in the new year.

The huge increase in borrowing comes at a time when inflation - the rate at which prices rise - is at a 40-year high, leading to higher interest payments. The Bank of England raised interest rates on 22 September from 1.75% to 2.25% - the highest level for 14 years - in an attempt to cool soaring prices.

This is the classic “trickle-down” economics, which is really the “trickle (or tickle) up” version. The U.K. cannot afford this, in the midst of rising inflation. A stimulus budget is in a recession not when prices are rising. Yes, there is a need for help to the most vulnerable, with rising cost of living but not for the ultra-rich! This will certainly cause a bad situation to get worse – a tropical storm is now upgraded to a hurricane!

So, what is this new era? More of the old Labour ways of borrow, borrow, borrow (sounds like Bora-Bora, a tropical island in the South Pacific) and spend!

Reference:

Chancellor Kwasi Kwarteng hails “new era” as he unveils tax cuts, Becky Morton, BBC, 24 September 2022