Chancellor Kwasi Kwarteng cuts top rate of income tax cut to 40%
Corporation tax rate to remain at 19%
Changes also announced on planning laws, alcohol duties and more
The government has published its 'Growth Plan 2022', outlining Liz Truss and Kwasi Kwarteng's combined policies to try and pull the economy out of recession and deliver their target of 2.5% growth.
In his mini-budget statement to the House of Commons, the new chancellor of the exchequer delivered a range of measures to cut tax and loosen regulations, which he and the prime minister believe will help the whole economy via the supposed trickle-down effect - though many experts warn this is a big gamble on a disproved economic theory.
Among his announcements, which were covered in more detail alongside estimated costings in HM Treasury's published version of the growth plan, were a surprise cut to the top rate of income tax, confirmation that the basic rate of income tax will be cut to 19% next April, a cancellation of the planned rise in corporation tax, cuts to stamp duty on home purchases, plus a range of other measures aimed at boosting businesses and investment.
The reaction was far from universally warm.
Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said “Collectively, these measures equate to a £26.7bn giveaway in 2023/24, or approximately 1% of GDP.”
“But the support to GDP will be relatively modest, given that the biggest winners of these policies are high earners.”
“All told, we believe that the economic outlook has not been transformed by these tax cuts” and “the government will need to focus much more or policies to boost labour supply if it is to have any chance of hitting its target of raising the economy’s trend growth rate to 2.5% per year.”
It was a "socially contentious plan", said Berenberg economist Kallum Pickering, but he was enthused.
He said: "the tax plan is not without risks and the fine print of supply side reforms will matter, the broad strokes of the government’s ‘Growth Plan’ look positive, on balance."
Financial markets were less impressed, as the pound tumbled further, dropping below $1.104 and the market for gilts - UK government bonds - went deeper into paroxysms, with yields surging.
As yields on 10-year UK gilts jumped above 3.75%, Paul Johnson, director of the Institute for Fiscal Studies, tweeted that it "looks like markets are a little spooked by scale of fiscal giveaway", with £45bn of tax cuts being the "biggest tax cutting event since 1972" where then-chancellor Lord Barber's 'dash for growth' "ended in disaster".
"Mr Kwarteng is not just gambling on a new strategy, he is betting the house.”
This, from @PJTheEconomist at the IFS, is utterly brutal. pic.twitter.com/6n8ftbwJ53
— Kevin Schofield (@KevinASchofield) September 23, 2022
Chris Sanger, EY’s Head of Tax Policy, said “As fiscal events go, this was a seismic one.”
He said beyond the headline announcements “it also triggers a change in mindset” with “the government doubling down on growth, providing tax cuts across the board.”
For more updates and the market's reaction, see the live FTSE market report.
Some eye-popping charts on the terminal today...
Like this one from @tracyalloway https://t.co/Rlq0j78sei pic.twitter.com/v985s9N8Xn
— Emily Ashton (@elashton) September 23, 2022
Live commentary:
10.15am: Opposition response
Shadow chancellor Rachel Reeves starts off by saying her counterpart's mini-Budget was a "comprehensive demolition of the record of the last 12 years" of successive Tory governments.
She said he had effectively made "an admission of 12 years of economic failure" and said his 2.5% growth target was the same rate that the last Labour government had delivered.
PM Truss and Kwarteng were like "two desperate gamblers in a casino" who had run out of ideas.
After the government pushed ahead with its plans without accompanying them with new forecasts from the Office for Budget Responsibility, she asked "what has the chancellor got to hide?"
12 years.
6 plans.
Low growth. pic.twitter.com/Z44Ln1fWv3
— Rachel Reeves (@RachelReevesMP) September 23, 2022
10am: 45p income tax rate is cut
On personal tax, the Chancellor comes up with a surprise with the announcement the government will abolish the 45p top rate of income tax, replacing it with a 40p rate.
The 40% highest rate will simplify the tax system and "make Britain more competitive" and "benefit the whole country".
He also says he will also cut the basic rate of income tax by 1p in the pound to 19 per cent in April 2023, a year earlier than his predecessor had planned.
Kwarteng confirms that stamp duty is also to be cut, effective today.
For home buyers there will be no stamp duty to pay on £250,000, double the current amount.
First-time buyers will not pay stamp duty on the first £425,000 of the house price.
And the maximum applicable value of the property that first-time buyers can apply the clause was upped to £625,000.
Kwarteng also reminds that yesterday he cancelled the 1.25pp increase in National Insurance, which will apply from 6 November.
9.57am: IR35 rules, VAT free shopping for tourists, alcohol duties
Kwarteng says the government will sunset all EU regulations.
He says IR35 rules will be simplified.
"We will repeal the 2017 and 2021 reforms."
For the retail and tourism sector, we will VAT-free shopping for overseas visitors. "This is a priority for British retailers," he says.
On alcohol duties, an 18-month transitional measure for wine duty, and for draught relief to cover to cover smaller kegs to help smaller breweries.
He announced planned increases on duty, wine, cider and spirits will all be cancelled.
9.54am: EIS and VCTs
The Enterprise Investment Scheme, the Venture Capital Trusts will be extended beyond 2025.
For the SEED investment scheme, company share option plans, the limits will be made more generous.
9.52am: Corporation tax, bank surcharge, business investment allowance
"And now we come to tax, central to solving the riddle of growth," he says.
"We believe that high taxes reduce incentives to work, they deter investment and they hinder enterprise."
He says first steps to review the tax system begins today.
He confirm that next year's planned corporation tax will be cancelled. It will not rise to 25% and remain at 19%, the lowest in the G20.
"This will plough almost £19bn back into the economy."
He says the bank surcharge will remain at 8%.
The annual investment allowance in plant and machinery will not fall as planned under his predecessor Rishi Sunak's plans and remain at £1mln.
9.49am: Pension charge cap, bankers bonus, busienss investment tax cuts
On the bankers' bonus cap "we are going to get rid of it" and he plans further regulatory reforms in coming weeks "to reaffirm the UK's status as the world's financial services centre".
He also says planning rules will be liberalised to accelerate development and cut taxes for businesses for construction and investment in plant and machinery, no stamp duty will be paid on purchases of land and buildings for commercial or residential development, on new business premises there will be no duty to pay, he says. If a business hires a new employee then on the first £50,000 they earn the employer will pay no national insurance.
He says early discussions are in place to establish investment zones.
New sources of capital investment are needed, Kwarteng says, so the pension charge cap will no longer apply to well-designed performance fees.
"This will unlock pension fund investments in UK assets and innovative high growth businesses. This will benefit savers and increase growth."
UP to £500mln of funds will be provided to support new innovative funds.
He says reforms will be made to try and prevent workers from going on strike. We will legislate to require trade unions to put pay offers to a member vote "only once negotiations have genuinely broken down".
9.46am: Planning laws
Reforming the supply side of the economy starts today, he says.
The planning process is too slow he says, so a plan will be published "unpick" the current process and laws that he says is constraining growth.
Today a list of infrastructure projects will be prioritised for acceleration in sectors like transport, energy and telecoms, and to increase housing supply the disposal of government land will be increased.
9.41am: £60bn cost of energy packages
He says a fiscal plan will be published showing how the government plans to reduce the country's debt and costings will also be published for all its plans, though noting that the total cost of the energy package for the six months from October is expected to be £60bn.
"We expect the cost to come down as we negotiate new long term energy contracts with suppliers."
He says it is appropriate to use government borrowing to pay for its policies.
9.37am: Chancellor sets growth target
The Chancellor is on his feet, starting with talk about the cost of energy, talking about the recent freezing of energy costs for households and businesses, as announced last week and in recent days.
He says the three measures announced are expected to lower inflation in the short-term.
"High energy costs are not the only challenge confronting this country. Growth is not as high as it should be."
He says this has made it harder to pay for public services, requiring taxes to rise in turn, with higher taxes have reduced economic incentives, hampering growth.
"We need a new approach for a new era focused on growth. Our aim is to reach a trend rate of growth of 2.5%"
"Our plan is to expand the supply side of the economy," he says.
The three central priorities will be "reforming the supply side of the economy, maintaining a responsible approach to public finance and cutting taxes to boost growth".
9.20am: Markets sceptical pre-event
The pound has fallen below US$1.12, the weakest level in sterling since 1985, while the FTSE is also in the red.
This was also following the release of the GfK consumer confidence index, which decreased five points in September to -49, setting yet another record low.
9.05am: Big tax cuts expected
New chancellor of the exchequer Kwasi Kwarteng will unveil a mini-budget this morning that is widely expected to include his and new prime minister Liz Truss's big gamble on slashing tax in order to try and boost UK growth via supposed trickle-down economics.
The “fiscal event” will be announced in the House of Commons at around 9.30am this morning, following a Cabinet meeting to approve the plans.
Following the Bank of England yesterday raising interest rates to their highest level in 14 years and warning that it believed the economy had already gone into recession, Kwarteng reportedly intends to set an official target of raising real GDP growth to 2.5% a year.
He is expected to say he wants to usher in a "new era focused on growth", which he believes "will deliver higher wages, greater opportunities and sufficient revenue to fund public services, now and into the future."
READ: Mini-Budget may offer some immediate relief to households and businesses
There was confirmation yesterday that the 1.25pp increase in National Insurance is going to be reversed from 6 November.
Other expectations are that the chancellor will bring forward a 1p cut in the basic rate of income tax, which was due to come into effect in April 2024, and raise the threshold for stamp duty as a boost to the housing market.
When Kwarteng sits down, shadow chancellor Rachel Reeves and then other MPs will be able to respond.
Reeves wrote in the FT overnight that the government's proposals are "just another zigzag on a path of policy failure tracking across the past 12 years of the economy" and that Truss and Kwarteng's trickle-down economics is a "discredited and inadequate" approach and "will not unleash the wave of investment and consumption she claims".
READ: Kwarteng and Truss's mini budget may be 'a bit of a gamble'
8.50am: Analysts' and economists' expectations
The UK mini-budget will capture the most attention this morning, says Marc Ostwald, chief economist and global strategist at ADM Investor Services, following on from the MPC split decision to hike rates and to start active gilt sales in October.
"The question is how much in the way of additional borrowing is envisaged in the new Truss govt measures to cap energy prices for both consumers and businesses, and to kick start the economy, as well as the extent to which these will add to medium-term inflationary pressures, and by extension complicate the BoE's already unenvious task. There will also be a good deal of discussion around the heavily signalled tax cuts (above all stamp duty), and whether there will be any material benefit for the economy from these," Ostwald says.
Gilts were "in paroxysms" yesterday after the Bank of England hike, says Neil Wilson at Markets.com, with bond investors looking ahead to this mini-Budget and what it will mean for borrowing.
The 10yr gilt yield topped 3.5% for the first time since 2011 after the chancellor announced the government would reverse the national insurance increase, with spreads with European neighbours widening and the gap between UK and German debt the largest since 2015.
On the 'fiscal event', Wilson says: "Where’s the mandate? I’m all for lower taxes and a smaller state, but where is the mandate for some of what’s being talked about in this mini-Budget? Perhaps that’s one for political and constitutional analysts to discuss – should Truss have been forced to call an election?
"Anyway, chatter this morning points to the biggest fiscal event in decades with all kinds of tax cuts, from stamp duty to the basic rate of income tax."
He also notes an IFS-Citi report argues the Kwasi-Budget is unsustainable with too much borrowing just as rates go up.