UK government dishes out tax cuts as country braces for recession

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British Prime Minister Kwasi Kwarten outside 10 Downing Street. UK to cap electricity and gas costs for businesses.

Rob Pinney | Getty Images News | Getty Images

LONDON — Britain’s new government on Friday announced a sweeping program of tax cuts and investment incentives as Prime Minister Liz Truss seeks to boost the country’s sluggish economic growth.

Finance Minister Kwasi Kwarten told the House of Commons that the government wants a “new approach for a new era focused on growth”, targeting 2.5% economic growth over the medium term.

“We believe that high taxes discourage people from working, discourage investment, and discourage businesses,” Kwarteng said.

Countermeasures are as follows.

  • Plans to raise the corporate tax rate to 25% have been canceled, leaving it at the lowest G-20 rate of 19%.
  • A reversal of the recent 1.25% rise in national insurance premiums (income tax).
  • The basic rate of income tax will be reduced from 20 pence to 19 pence.
  • The 45% tax payable on income over £150,000 ($166,770) will be abolished and the top rate will be 40%.
  • Significant reduction in stamp duty on home purchases.
  • A network of “investment zones” across the country where businesses are offered tax breaks, liberalized planning rules, and reduced regulatory hurdles.
  • Refund system for consumption tax paid by tourists.
  • Abolition of tax rate hikes on various alcoholic beverages.
  • Abolition of bonus caps for bank employees.

The government estimates the tax cuts will total £45bn by 2026-2027.

come the day after the bank of england Said It was thought likely that the UK economy entered a formal recession in the third quarter as it raised interest rates by 50 basis points to combat decades of high inflation.Economy 0.1% reduction in the second quarter amid real income tightness.

Despite containing major reforms, Friday’s package is not described as an official budget by the government as it is not accompanied by the usual economic forecasts from the Office of Budget Responsibility.

Critics of the proposal say the combination of massive tax cuts and the government’s shield plan household When business High energy prices leave the UK with high levels of debt when interest rates rise. The energy assistance package is expected to cost him more than £100 billion ($111 billion) over two years.

Data released on Wednesday showed the UK government borrowed £11.8bn in August on higher government spending.

Kwarteng said on Friday that the UK has the second lowest debt-to-GDP ratio in the G-7 and will announce plans to cut its debt-to-GDP ratio over the medium term.

On energy, he said the price cap would reduce peak inflation by 5% and reduce pressure on the cost of living. He also announced an energy market financing scheme in collaboration with the Bank of England. This provides his 100% guarantee to a commercial bank that provides emergency liquidity to energy traders.

Opposition Labor Party claimed Tax cuts will disproportionately benefit the wealthy, and they will be financed by unsustainable borrowing.

Quarteng Labor, facing Rachel Reeves, called the plan a trickle-down of economics in Commons, quoting US President Joe Biden. said this week He said he was “fed up” with the policy and said it had never worked.

“Earthquake Shift”

Chris Sanger, head of tax policy at accounting firm EY, said: “As financial events unfold, this has been like an earthquake.

“The decision to deny VAT refunds for travelers leaving the UK has been rescinded and will only be implemented when leaving the EU, and the introduction of new super-strong Special Economic Zones will help the UK attract foreign direct investment and tourists. “It reinforces the message that it wants to attract. Essentially, the government is doubling down on growth and cutting taxes across the board,” he said in an email.

Shevaun Havilland, secretary general of the British Chamber of Commerce, said the pledge to focus on growth and accelerate infrastructure development would be welcomed by businesses.

“The introduction of investment zones could also finally deliver on the government’s long-standing promise to level up if the plan is truly UK-wide,” he said.

“We also need to learn lessons from the past. It is important to set these zones right from the beginning, otherwise growth and investment can shift from one region to another without generating new economic activity. I can do it.”

The Institute of Fiscal Studies, an economic research group, warned that “making plans backed by the idea that major tax cuts will sustainably boost growth is a gamble at best.”

Meanwhile, Torsten Bell, chief executive of the think tank Resolution Foundation, said the policy was a “surprisingly huge tax cut for wealthy households.”

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