British Chancellor Kwasi Kwarteng outside 10 Downing Street. Britain will cap the cost of electricity and gas for businesses.
Rob Pinney | Getty Images News | Getty Images
LONDON — Britain’s new government announced a sweeping package of tax cuts and investment incentives on Friday, as Prime Minister Liz Truss seeks to boost the country’s faltering economic growth.
Addressing the House of Commons, Finance Minister Kwasi Kwarteng said the government wanted a “new approach for a new era of growth” and was aiming for a medium-term trend growth rate of 2.5 %.
“We believe that high taxes reduce work incentives, discourage investment and hinder business,” Kwarteng said.
- Cancellation of a planned corporate tax hike to 25%, maintaining it at 19%, the lowest rate in the G-20.
- A reversal of the recent 1.25% rise in National Insurance contributions, an income tax.
- A reduction in the basic rate of income tax from 20p to 19p and a removal of the additional rate of 45p paid on income over £150,000.
- Substantial reductions in a tax on housing purchases.
- A network of “investment zones” across the country where businesses will be offered tax cuts, liberalized planning rules and reduced regulatory hurdles.
- A system for recovering taxes paid on tourist purchases.
- Removal of an increase in tax rates on various alcoholic beverages.
- Removed a cap on banker bonuses.
It comes a day after the Bank of England said Britain’s economy was likely to officially go into recession in the third quarter as it raised interest rates by 50 basis points to fight inflation. high for decades.
Although it contains sweeping reforms, the package is not described by the government as an official budget because it was not accompanied by the usual economic forecasts from the Office for Budget Responsibility.
Critics of the proposals warn that the combination of deep tax cuts and the government’s plan to protect households and businesses from soaring energy prices will see the UK spiraling into debt at a time of rising rates. The energy support package is expected to cost more than £100bn ($111bn) over two years.
Data released on Wednesday showed the UK government borrowed £11.8bn in August, significantly above forecasts and £6.5bn more than the same month in 2019, due to a increase in public spending.
Kwarteng said on Friday the UK had the second-lowest debt-to-GDP ratio in the G-7 and would announce a plan to reduce debt as a percentage of GDP over the medium term.
On energy, he said the price cap would reduce peak inflation by 5 percentage points and reduce broader cost-of-living pressures. He also announced an Energy Markets Funding Scheme, in conjunction with the Bank of England, which will provide a 100% guarantee to commercial banks that provide emergency liquidity to energy traders.
The Institute for Fiscal Studies, an economic research group, said reversing the income tax hike and canceling the planned corporate tax hike would result in a $30 billion cut pounds of tax revenue. He added that “laying plans based on the idea that across-the-board tax cuts will provide a lasting boost to growth is, at best, a gamble.”
The opposition Labor Party argues the tax cuts will disproportionately benefit the wealthy and will be funded by unsustainable borrowing.
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