London: UK's New finance minister Kwasi Kwarteng on Friday announced an economic agenda designed to thrust Britain out of a cycle of stagnation and into a new era of higher economic growth - but with a hefty bill attached. Kwarteng affirmed Prime Minister Liz Truss's goal to double Britain's trend rate of annual economic growth to 2.5 per cent and for the first time, he put a price tag on her spending plans.
Britain said the package of tax cuts announced on Friday would cost 45 billion pounds by the financial year 2026/27. The government published its growth plan alongside finance minister Kwasi Kwarteng's fiscal statement to parliament. The document showed the predicted impact of all the tax changes over the next five years. In 2022-2023 the cost would be just over 19 billion pounds, rising to 44.8 billion by 2026-27.
The British pound tumbled two percent against the dollar Friday, as recession fears intensified following poor data despite UK government efforts to drive growth. Following Britain's tax-cutting budget, sterling plunged to $1.1042, the lowest level since 1985, also after survey data showed the UK economy was likely in recession.
Income tax cut
Kwarteng said on Friday he would scrap the country's top rate of income tax and cut the basic rate next April - a year earlier than expected - to spur economic growth.
Kwarteng announced that from April 2023 Britain would have a single higher rate of income tax of 40 per cent, scrapping an additional rate of 45 per cent on income over 150,000 pounds ($168,000 or Dh612,000). He also said he would cut the basic rate of income tax to 19 pence in April 2023, one year earlier than expected.
The current 45 per cent additional rate is "currently higher than the headline top rate in G7 countries like the US and Italy," Kwarteng told the House of Commons on Friday. "And it is higher even than social democracies like Norway."
"That means a tax cut for over 31 million people in just a few months' time," he told parliament. "That means we will have one of the most competitive and pro-growth income tax systems in the world.
Property purchases for British families gets easier
Stamp duty, a tax on house purchases, will be cut to help families afford to buy homes, finance minister Kwarteng said, with a threshold at which it is first paid doubling to 250,000 pounds (just over Dh1 million) for home movers. The nil-band threshold for first-time buyers will also increase to 425,000 from 300,000 pounds, he told lawmakers on Friday, adding that the changes are permanent and effective immediately.
"The steps we've taken today mean 200,000 more people will be taken out of paying stamp duty altogether," he said in a tax-cutting mini-budget designed to spur economic growth.
Stamp duty, payable in England and Northern Ireland, is a graduated tax, which rises in steps to 12 per cent on the portion of the property price above 1.5 million pounds (Dh6.1 million). There was a stamp duty holiday during the COVID-19 pandemic, which initially increased the nil band to 500,000 pounds (Dh2.04 million), stimulating a market which rose to record levels.
VAT-free shopping for overseas visitors
Britain will introduce sales tax free shopping for overseas visitors to boost the retail sector, Kwarteng said.
"We have decided to introduce VAT-free shopping for overseas visitors...And this will be in place as soon as possible," he told parliament.
Subsidised gas and electricity
Britain will spend about 60 billion pounds ($67 billion) on subsidising gas and electricity bills for the next six months for households and businesses, Kwarteng revealed in his mini-Budget presentation.
"The estimated costs of our energy plans are particularly uncertain given volatile energy prices, but based on recent prices, the total cost of the energy package for the six months from October is expected to be around 60 billion pounds," he told parliament.
"We expect the cost to come down as we negotiate new, long term energy contracts with suppliers."
UK to offer lowest corporate tax in G20
Next year's planned rise in UK corporation tax will be cancelled, Kwarteng confirmed in his mini-Budget. "The UK's corporate tax rate will not rise to 25 per cent - it will remain at 19 per cent," he told the House of Commons on Friday
"We will have the lowest rate of corporation tax in the G20. This will plough almost 19 billion pounds a year back into the economy. That's 19 billion pounds for businesses to reinvest, create jobs, raise wages, or pay the dividends that support our pensions."
Kwarteng also vowed to permanently keep the annual investment allowance, which gives 100 per cent tax relief on investments in plant and machinery.
Kwarteng's package will contain more than 30 measures designed to stimulate growth, drive down inflation and accelerate infrastructure projects, the Treasury said in the statement. It includes plans to set up "investment zones" nationwide with targeted tax breaks and relaxed planning restrictions for business.
EU-inherited rules to change
Britain will accelerate moves to bolster the City of London's competitiveness as a global financial centre by scrapping the cap on banker bonuses ahead of an "ambitious deregulatory" package later in the year, Kwarteng said.
The cap limits bonuses to twice a banker's basic salary, with shareholder approval, and was introduced in the European Union to curb excessive risk-taking after taxpayers had to bail out lenders in the global financial crisis. The move was already flagged, triggering anger as Britain faces a cost of living crisis, forcing the government to spend billions to help households pay their energy bills.
Britain and the Bank of England have always opposed the cap, introduced in 2014, saying it simply bumps up basic pay. "We need global banks to create jobs here, invest here and pay taxes here in London, not in Paris, not in Frankfurt and not in New York," Kwarteng told parliament.
"All the bonus cap did was to push up the basic salary to bankers or drive activity outside Europe, it never capped total remunerations... As a consequence of this ... we are going to get rid of it."
Banks and finance recruiters have said scrapping the bonus cap would likely take time to have an effect - as many bankers' had their fixed pay lifted in recent years to make up for constrained bonuses. The banking industry had been prioritising other demands to boost competitiveness, including scrapping government levies on bank profits.
Kwarteng said the financial services sector will be at the heart of the government's programme to drive growth in the economy. "To reaffirm the UK's status as the world's financial services centre, I will set out an ambitious package of regulatory reforms later in the autumn," he added.
"Our entire focus is on making Britain more globally competitive - not losing out to our competitors abroad."
"Growth is not as high as it needs to be ... We need a new approach for a new era, focused on growth. Our aim, over the medium term, is to reach a trend rate of growth of 2.5 per cent," Kwarteng added.