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Mini-budget: Kwasi Kwarteng announces biggest tax cuts since 1972 in UK growth push

The Chancellor of the Exchequer Kwasi Kwarteng speaks during the Government's Growth Plan statement at the House of Commons, in London, Britain, September 23, 2022. UK Parliament/Jessica Taylor/Handout via REUTERS    THIS IMAGE HAS BEEN SUPPLIED BY A THIRD PARTY. MANDATORY CREDIT.  IMAGE MUST NOT BE ALTERED.
UK chancellor Kwasi Kwarteng unveiled a series of tax cuts as he delivered his mini-budget. Jessica Taylor/Handout via Reuters.

Kwasi Kwarteng has set out plans to get the UK economy firing on all cylinders in his first fiscal statement, in what the government dubbed a "growth plan".

Speaking in the House of Commons, the chancellor announced tens of billions of pounds of increased spending and tax cuts in the mini-budget on Friday.

Prime minister Liz Truss has come under fire for the tax-slashing promises, which experts have called irresponsible.

However, Kwarteng said that focusing on growth will deliver higher wages and increase revenue to fund public services, while allowing Britain to compete with other leading economies.

He set out three priorities in the government's plan for growth. including maintaining responsible public finances, reforming the supply-side of the economy, and cutting taxes to boost growth.

Read more: UK is already in a recession, new data from the Bank of England indicates

The plan for growth comes against the backdrop of an ailing economy, which Bank of England said is already in recession, surging inflation, and falling wages, economists say growth would be hard to accomplish — but Kwarteng is nonetheless expected to shake-up the fiscal rulebook to achieve his 2.5% target.

Threadneedle Street said it would carefully assess the impact of the government’s energy price caps and growth plan ahead of the committee’s next decision in November.

The central bank raised rates by 0.5% to 2.25%to stem inflation, which is almost five times above the Bank's 2% target, at 9.9%, and forecast to rise further.

Watch: Kwasi Kwarteng announces abolition of stamp duty on homes worth up to £250,000

Unlike ordinary budgets, which are usually held in November, Kwarteng put forward only a handful of major legislative proposals, centred around tax cuts for households and businesses.

Here's what he announced.

Energy bills

In her first major policy intervention since becoming PM, Truss announced an energy price guarantee to freeze bills at £2,500 a year until 2024 from October, Kwarteng confirmed the plan in the mini-budget.

Business secretary Jacob Rees-Mogg announced a six-month energy support scheme for businesses, in a bid to prevent firms collapsing over the winter period. Schools and hospitals will also benefit from the pledge to halve energy bills.

Kwarteng said that the energy rescue scheme will cost £60bn in the first six months.

He said the energy price guarantee will limit the unit price that consumers pay for electricity and gas, noting: "This means that for the next two years, the typical annual household bill will be £2,500. For a typical household, that is a saving of at least £1,000 a year, based on current prices.

"We are continuing our existing plans to give all households £400 off bills this winter. So taken together, we are cutting everyone’s energy bills by an expected £1,400 this year."

The PM has ruled out a windfall tax on oil and gas companies to help fund the package.

Read more: Bank of England hikes UK interest rates by 0.5% to 14-year high

Stamp duty

The chancellor confirmed a cut in stamp duty to encourage economic growth by allowing more people to move and enabling first-time buyers to get on the property ladder.

At present, there is no stamp duty to pay on the first £125,000 of a property's value. This will be doubled to £250,000.

The threshold for first-time buyers will be increased from £300,000 to £425,000. And, the value of the property on which first-time buyers can claim relief will be raised from £500,00 to £625,000.

This will be a permanent cut, the chancellor said.

The stamp duty threshold was increased temporarily to £500,000 during the pandemic to help stimulate the property market.

Read more: Will stamp duty cut push house prices up even further?

National insurance

The 1.25% rise in national insurance contributions (NICs) will be reserved from 6 November, while a tax hike to fund health and social care will also be axed.

Kwarteng confirmed the decision announced on Thursday ahead of the mini-budget, delivering on a key pledge from Truss to cut taxes and promote economic growth.

The rise was first introduced in April 2022 under former chancellor Rishi Sunak, however, the new prime minister vowed to change it during the Conservative leadership race.

Scrapping the national insurance rise now means almost 28 million people will get to keep an extra £330 of their money on average next year, while 920,000 businesses are set to save £9,600.

For small and medium companies who see their NICs bills reduced, the average saving is £4,200 and £21,700 respectively in 2023-24.

Read more: Kwasi Kwarteng reverses national insurance hike and health and social care levy

Income tax

Kwarteng brought forward by a year the pledge, made by Sunak, to cut income tax by 1% from 2024 to 2023.

The basic rate of income tax will be cut to 19p in April 2023, Kwarteng said this means a tax cut for over 31 million people.

"That means we will have one of the most competitive and pro-growth income tax systems in the world."

Additional tax rebate

From 2023, the government will also abolish the 45% additional tax rate. Instead, there'll be a single higher rate of income tax of 40%.

The chancellor says this will simplify the tax system and make Britain more competitive.

Watch: UK chancellor announces cancellation of corporation tax rise on business profits

Corporation tax

A planned increase in corporation tax was cancelled in Friday's "fiscal event", keeping the levy at 19%.

"We will have the lowest rate of corporation tax in the G20. This will plough almost £19bn a year back into the economy. That’s £19bn for businesses to reinvest, create jobs, raise wages, or pay the dividends that support our pensions."

Former chancellor Sunak planned to raise the tax from 19% to 25% from next April.

Reversing this would help to stop Britain from appearing unattractive to businesses that might otherwise set up operations in the European Union or the United States, Kwarteng said.

City reforms

Kwarteng outlined regulatory reforms in the City of London that are intended to unlock billions of pounds of investment by pension funds in infrastructure, in a bid to make the capital the world’s leading financial hub.

He scrapped a cap on banker bonuses as millions struggle to keep up with the rising cost of living.

The chancellor has come under fire for the controversial move that underlines Truss’s determination to introduce major post-Brexit reforms to the City of London.

"All the bonus cap did was to push up the basic salaries of bankers, or drive activity outside Europe. It never capped total remuneration, so let’s not sit here and pretend otherwise," Kwarteng said. "So we’re going to get rid of it."

Read more: Banker bonus cap: What will happen if Kwasi Kwarteng scraps it?

Investment zones

The chancellor also announced the creation of 38 investment zones across the UK – areas with lower taxation and planning rules.

The government is in talks with local authorities in the West Midlands, Tees Valley, Somerset and other regions to establish the new investment zones, he said.

There will be liberalised planning laws and tax cuts in these area, Kwarteng added.

"That is an unprecedented set of tax incentives for business to invest, to build, and to create jobs right across the country."

Watch: Chancellor to deliver biggest tax cuts since Nigel Lawson’s Budget 34 years ago, says IFS