The UK government scrapped a corporate tax hike and lifted a cap on bankers’ bonuses on Friday in a bid to boost the flagging economy.
Chief Financial Officer Kwasi Kwarteng made the announcement in Parliament as he presented a “mini-budget” to lawmakers.
The UK government is expected to release an emergency budget statement on Friday outlining how it plans to cut taxes, tame rising inflation and boost economic growth as a recession looms on the horizon.
Chief Financial Officer Kwasi Kwarteng’s “mini-budget” that is to be presented to the legislature is intended to nullify a planned increase in corporate income tax.
Prime Minister Liz Truss, who took over as UK leader less than three weeks ago, has repeatedly stressed that her Conservative government’s key task is to cut taxes to boost economic growth.
She declared this week that she was ready to make “unpopular decisions” such as raising bonuses for bankers to attract jobs and investment.
The Institute for Fiscal Studies predicts that Friday’s statement, while not a full budget, appears to be Britain’s “biggest tax cut event” in more than 30 years.
“Taxing our way to wealth has never worked. In order to raise the standard of living for everyone, we don’t have to apologize for the growth of our economy,” Kwarteng said on Thursday. “Tax cuts are crucial for this.”
Before his statement on Friday, the chief financial officer confirmed that he was reversing an increase in workers’ social security contributions introduced by the previous government. Kwarteng’s predecessor, Rishi Sunak, imposed an increase in welfare and a backlog in the public health service.
Soaring inflation and a cost-of-living crisis driven by soaring energy costs are the biggest immediate challenges facing the Truss government. Inflation is at 9.9 percent, nearly the UK’s highest level since the 1980s, and is expected to peak at 11 percent in October.
In the last two weeks, the government has announced that the government will cap gas and electricity bills for homes and businesses amid fears the poorest cannot afford to heat their homes and businesses will go bust this winter will.
But UK officials have not revealed how they intend to fund the relief effort, which analysts say could total tens of billions of pounds.
Some economists have warned of the sharp rise in government debt.
The Institute for Fiscal Studies warned that borrowing is expected to reach £100bn (€115bn) a year even if temporary measures to support energy bills expire in two years.
The research institute said that at such levels of debt, officials’ claims that cutting tax rates would lead to sustained economic growth were “gambling at best.”
Paul Johnson, director of the institute, also said the Conservative government’s actions to help millions of people pay their energy bills will not reverse the steady decline in living standards.
“I fear that the energy price shock has made us poorer and will make us worse off,” he said. “The government can spread the pain over time and between people, but in the end they won’t be able to magic it away.”
On Friday, Kwarteng is expected to announce new “investment zones” across England, where the government will offer tax cuts for businesses and help create jobs. He will also provide details on how the government plans to accelerate dozens of new major infrastructure projects, including in transport and energy.
Truss – who takes inspiration from Margaret Thatcher’s small-state, free-market economy – has insisted that economic growth and corporate tax cuts will benefit everyone in the country.
But critics say Truss’s far-right instincts are the wrong answer to Britain’s economic crisis.
https://www.independent.ie/business/irish/uk-scraps-corporate-tax-hike-lifts-cap-on-banker-bonuses-42011673.html UK scraps corporate tax hike and removes cap on bankers’ bonuses