UK government orders tax cuts as country faces recession

UK Prime Minister Kwasi Kwarteng outside 10 Downing Street. Britain will limit electricity and gas costs for businesses.

Rob Pinney | Getty Images News | beautiful pictures

LONDON – The UK’s new government announced a sweeping program of tax cuts and investment incentives on Friday, as Prime Minister Liz Truss seeks to boost the country’s faltering economic growth.

Speaking to the House of Commons, Finance Minister Kwasi Kwarteng said the government wanted a “new approach to a new era focused on growth” and was targeting a medium-term trend growth rate of 2.5%.

“We believe that high taxes reduce incentives to work, discourage investment and hinder entrepreneurship,” Kwarteng said.

Measures include:

  • Cancel the plan to raise the corporate tax rate to 25%, keep it at 19%, the lowest level in the G-20.
  • A reversal in the recent 1.25% increase in National Insurance contributions, a tax levied on income.
  • Reduce the basic income tax rate from 20p to 19p and eliminate the additional 45p tax rate paid on income over £150,000.
  • Substantial home tax cuts.
  • A network of “investment zones” around the country where businesses will enjoy tax cuts, liberalized planning rules and reduced regulatory obstacles.
  • A refund scheme for taxes paid by tourists while shopping.
  • Cancel the increase in tax rates for different types of alcohol.
  • Bypass the bonus limit of the bankers.

It came a day after the Bank of England speak The UK economy is likely to have entered a full-fledged recession in the third quarter, as it raised interest rates by 50 basis points to combat decades-high inflation.

Despite the sweeping reforms, the package is not considered an official budget by the government as it does not come with the usual economic projections from the Office of Budget Responsibility.

Critics of the proposal warn that a combination of widespread tax cuts and government shielding plans family and businesses from high energy prices that will put the UK on a high debt burden at a time when rates rise. The energy support package is expected to be worth more than £100 billion ($111 billion) over two years.

Data released on Wednesday showed the UK government borrowed £11.8 billion in August, significantly higher than forecast and a £6.5 billion increase on the same month in 2019, driven by government spending. government increased.

Kwarteng said on Friday the UK has the second-lowest debt-to-GDP ratio in the G-7 and will 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 ease broader cost-of-living pressures. He also announced an energy market funding scheme that, in conjunction with the Bank of England, will provide 100% guarantees to commercial banks providing 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 £30bn reduction in tax revenue. It more that “setting up the plans is underpinned by the idea that the headline tax cuts will provide a sustained boost to growth, at best a gamble.”

Opposition Labor Party debate that tax cuts disproportionately benefit the wealthy and are financed by unsustainable borrowing. Speaking in the Commons, Kwarteng’s Labor opposite Rachel Reeves called the plans downright economics and quoted Joe Biden, who said this week he was “sick and tired” of the policy and it never worked.

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