Major tax cuts announced in new Chancellor's mini-budget
Kwasi Kwarteng said the energy price support will cost £60 billion over the first six months, paid for by more borrowing.
Last updated 23rd Sep 2022
The new Chancellor has announced major tax cuts and a series of major policies the government believes will help grow the UK economy.
In a so-called "mini-budget" Kwasi Kwarteng scrapped the cap on bankers' bonuses, put new restrictions on people using the welfare system, and argued that tax cuts are "central to solving the riddle of growth".
He scrapped the 45% higher rate of income tax and brought forward the planned cut to the basic rate to 19p in the pound a year early to April.
But Labour's shadow chancellor says it amounts to an admission of "12 years of economic failure" by the Tories.
Key takeaways from Friday's announcement
- Basic rate of income tax cut from 20p to 19p in April 2023
- Scrapping the higher rate of income tax entirely
- The threshold before stamp duty is paid has been raised to £250,000.
- A cap on bankers’ bonuses has been lifted.
- Planned raises in corporation tax and NI have been scrapped.
The Chancellor says these measures will help boost economic growth,
The Bank of England raised interest rate by 0.5% to 2.25% yesterday saying the UK economy may already be in recession.
Cost of new energy crisis action is £60bn
Mr Kwarteng also revealed his estimate that the two-year energy bills bailout will cost around £60 billion over its first six months from October.
The package enacting Liz Truss's tax-cutting promises including reversing the national insurance rise and axing the hike to corporation tax, came a day after the Bank of England warned the UK may already be in a recession.
Mr Kwarteng said their economic vision would "turn the vicious cycle of stagnation into a virtuous cycle of growth".
By terming it a "fiscal event" rather than a full budget, Mr Kwarteng avoided the immediate scrutiny and forecasts of the Office for Budget Responsibility.
What does Money Saving Expert Martin Lewis think?
Consumer money expert Martin Lewis described the Government's financial plan as "staggering" after the so-called mini-budget from Chancellor Kwasi Kwarteng was announced.
Lewis, founder of Money Saving Expert, tweeted: "That really was quite a staggering statement from a Conservative Party government.
"Huge new borrowing at the same time as cutting taxes.
"It's all aimed at growing the economy. I really hope it works. I really worry what happens if it doesn't."
So will I see more money in my bank account when I get paid?
The highest earners will see the top rate of income tax scrapped - while everyone will see the basic rate reduced from 20 to 19p in the pound next year.
The Chancellor confirmed to MPs that the health and social care levy introduced by Boris Johnson's government would be cancelled.
Kwasi Kwarteng said: "It is an important principle that people should keep more of the money they earn. It is good policy to boost the incentives for work and enterprise.
"Yesterday, we introduced a Bill that means the Health and Social Care Levy will not begin next year. It will be cancelled."
The Chancellor said this, and other planned rises in national insurance contributions, would be cancelled from "the earliest possible moment", November 6.
Big bankers bonuses are back
Chancellor Kwasi Kwarteng was heckled by opposition MPs and cheered by his own side as he confirmed plans to get rid of the cap on bankers' bonuses.
He told the Commons: "A strong UK economy has always depended on a strong financial services sector. We need global banks to create jobs here, invest in London, and pay taxes in London, not Paris, not Frankfurt, not New York. All the bonus cap did was to push up the basic salaries of bankers, or drive activity outside Europe.
"It never capped total remuneration, so let's not sit here and pretend otherwise. So we're going to get rid of it.
"And 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."
Trickle down economics
Labour Shadow Chancellor criticised the ‘mini budget’ and said the government is replacing levelling up with trickle down economics.
Responding in the Commons to the Chancellor's statement on the economy, Ms Reeves said: "The Chancellor has confirmed that the costs of the energy price cap will be funded by borrowing, leaving the eye-watering windfall profits of the energy giants untaxed.
"The oil and gas producers will be toasting the Chancellor in the boardrooms as we speak while working people are left to pick up the bill.
"Borrowing higher than it needs to be, just as interest rates rise. And yet the Chancellor refuses to allow independent economic forecasts to be published, which would show the impact of this borrowing on our public finances and growth, and on inflation”.
Cost of living crisis
Interest rates and inflation go up
Inflation rose by 8.8% in the 12 months to January 2023, down from 9.2% in December 2022. With interest rates also rising to 4%, those saving money will earn more interest on their finances, whilst those paying mortgages would pay more interest to the bank.
Energy bills
The price of energy went up incredibly as the cost of living crisis hit, with the gas price spike caused largely by the war in Ukraine. The price cap - which is set by an independent regulator to help offset costs onto customers - was set to rise to £3,549 for an average home in October but a price freeze from the government restricted the typical bill to £2,500. That's still an increase of 27% from the previous energy cap and as it's a cap on unit cost, the more energy you use the higher your bill will be.
Food prices
The cost of a weekly shop also has gone up as a result of the cost of living crisis. As a result of the war in Ukraine, a number of products including cooking oils and wheat have been disrupted. This means that several products are now considerably more expensive, driving bills up for customers.
Prices at the pumps
The average cost of petrol has also rose to unprecedented levels. Supply lines for petrol have been thrown into doubt as a result of the war in Ukraine, as Russia is a large export partner for gas, oil and fuel. In April 2022, the average price for a litre of petrol on the forecourt was 160.2p, whilst a litre of diesel would cost 170.5p. By late June 2022 the price had risen to an average of 190.9p for a litre of unleaded and 198.9p for a litre of diesel. In March 2023 the price wass on average of 147.03 in petrol and 167.04 in diesel.
Average cost of filling up a car with petrol hits £100
On 9th June 2022, the average cost of filling up a car with petrol hit £100 for the first time ever. Diesel had already hit that milestone. It comes as the cost of fuel hit a record high of one pound eighty a litre. The 2p rise was the biggest daily jump in 17 years. Prices have dropped by at least 20p per litre since the high point.