Mini-Budget 2022 latest: Kwarteng tax cuts send pound plummeting

Energy bill package will cost £60bn in first six months, says chancellor Kwasi Kwarteng

The pound plummeted to a 37-year low after the chancellor unveiled the biggest raft of tax cuts for half a century in a mini-Budget slated by fiscal experts as unsustainable.

In a scathing assessment, the Institute of Fiscal Studies said Kwasi Kwarteng was “betting the house” by putting government debt on an “unsustainable rising path” and “without even a semblance of an effort to make the public finance numbers add up”.

Critics attacked it as benefiting only the wealthy and big business,

Mr Kwarteng’s plan, aimed at raising falling living standards by boosting growth, involves more than £70 billion of extra borrowing.

In a raft of tax cuts costing up to £45 billion annually, he scrapped the top rate of tax for the highest earners, cut stamp duty and brought forward a cut to the basic rate of income tax, to 19p.

Mr Kwarteng also confirmed he will axe the cap on bankers’ bonuses while adding restrictions to the welfare system.

But the price of government borrowing soared even higher amid fears the package had sent UK markets into meltdown.

TUC leader Frances O’Grady said: “This budget is Robin Hood in reverse.”

Rachel Reeves, the shadow chancellor, said it was “a plan to reward the already wealthy”.

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Labour will fight scrapping of top rate of income tax

The shadow chancellor Rachel Reeves said she was not convinced that the government would get its plan to axe 45 per cent higher income tax rate through parliament.

“We will fight tooth and nail to stop that cut in taxes for the very wealthiest in society,” she told LBC.

“I’m not sure that this proposed cut in tax is going to survive contact with reality. And we will work with MPs across the house in trying to stop this.”

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Pound drops to 37-year low – what does it mean for you?

The pound had its worst day since the early days of the pandemic – and it is likely to leave the average household around £150 worse off every year. Read how:

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Path we were on was unsustainable, says chancellor

Chancellor Kwasi Kwarteng has insisted it was “absolutely fair” to cut taxes for all earners.

Responding to a suggestion the cuts were not fair, he said: “It’s absolutely fair to reduce people’s taxes and to make sure, as you’ve admitted, that people are going to retain more of what they earn.

“The path we were on was simply unsustainable.

“We couldn’t simply raise taxes indefinitely and hope that we would get prosperity.”

He and Liz Truss visited a manufacturing facility in Kent on Friday afternoon. Ms Truss did not take questions.

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UK has ‘worst economic policies of major countries’, says ex-US treasury secretary

Former US Treasury secretary Larry Summers offered scathing criticism of the mini-Budget, saying the UK was pursing “the worst macroeconomic policies of any major country in a long time”.

“It makes me very sorry to say, but I think the UK is behaving a bit like an emerging market turning itself into a submerging market,” he told Bloomberg, saying it would not surprise him if the pound fell below a dollar.

“Between Brexit, how far the Bank of England got behind the curve and now these fiscal policies, I think Britain will be remembered for having pursuing the worst macroeconomic policies of any major country in a long time,” he said.

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Mini-Budget: winners and losers

Experts at the leading tax and advisory firm Blick Rothenberg have broken down the big winners and losers from chancellor Kwasi Kwarteng’s mini-Budget forThe Independent. Adam Forrest reports:

High earners – the wealthy will benefit most from the national insurance cut and the abolishment of the additional rate of income tax. Someone earning £1m will save over £50,000 a year. Someone earning £20,000 will save only £218.

Company directors – changes to the national insurance rate from November may apply retrospectively from April for directors, meaning a “bumper” tax cut.

First-time buyers – stamp duty changes which raises the threshold before paying to £425,000 will provide some relief to first-time buyers in the face of rising mortgage interest rates.

Small businesses – firms will benefit from cuts to employer national insurance, as well as cuts to the dividend rate from April 2023, which would see the top rate of tax on a dividend reduced from 39.35 per cent to just 32.5 per cent.

Pubs and bars – The sector struggling with rising energy bills will get some relief from the cancellation of the planned alcohol duty increases.

Low-income individuals – people on incomes below the personal allowance will not receive any extra assistance.

Recent house buyers – people who have paid stamp duty tax in recent months during a period of higher tax rates.

Future governments – additional borrowing required to fund the tax cuts could cause “substantial headaches” for future governments” when it comes to funding public services.

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Falling pound parity with dollar idea absurd, says minister

The Chief Secretary to the Treasury has dismissed warnings that the pound could fall to parity with the US dollar as “absurd”.

Chris Philp was asked whether the government would have to resign in this scenario, which economists have warned is possible after the tax-cutting mini-Budget.

He told Radio 4’s PM: “I’m not gonna get into frankly slightly absurd hypothetical speculation.

“We only came into office two-and-a-half weeks ago.

“We’ve got a job to do … We’re going to make this country an economic success.”

Mr Philp, who has been a minister for several years, was earlier ridiculed after claiming Kwasi Kwarteng’s announcement had pushed up the value of the pound, moments before it dived to a 37-year low.

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Opinion: This is one almighty gamble

Business leaders fear the government will be forced into drastic corrective policy swings, while Treasury experts believe the new tax cuts won’t pay for themselves. Analysis by Anna Isaac:

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How income tax basic rate has dropped

The rate of basic income tax has almost halved in just under 50 years, analysis shows:

(PA)

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Tory MP slates tax cut for wealthy

Conservative former cabinet minister Julian Smith has condemned the chancellor’s decision to hand a huge tax cut to the wealthy.

He was responding to analysis from the Institute for Fiscal Studies that found workers earning less than £155,000 will lose in the coming years, but those earning more would win as a result of the freezing of allowances and thresholds.

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Road and fossil-fuel projects dominate plan, say environmentalists

The mini-Budget’s plans for road-building and using fossil fuels undermine government climate targets and wreck environmental protections, says Friends of the Earth.

Mike Childs, head of science, policy and research, said: “Almost two-thirds of the infrastructure priorities announced today as part of the Chancellor’s Growth Plan are road schemes, along with five North Sea oil and gas developments.

“Surely the government can no longer pretend that its plans are consistent with the UK’s legal obligation to cut climate-changing carbon emissions? “It’s good that there a few offshore wind projects in the mix – though a relatively small number – but alongside these there should have been a long list of onshore wind sites and solar farms because they are quick to build and an incredibly cheap source of energy. “What’s also missing from the growth plan is any assessment of its climate impacts.

“Instead, it works as a blueprint for ripping up important environmental safeguards and pursuing economic growth at any cost, which is the last thing we need faced with a climate and ecological crisis that is already devastating the planet.”

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