Major taxes cut in new chancellor's mini-budget
Kwasi Kwarteng said the energy price support will cost £60 billion over the first six months
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 - but that won't change here where the rates are controlled by the Scottish Government - and brought forward the planned cut to the basic rate to 19p in the pound a year early to April.
In addition, 3 million Scottish workers are to get a National Insurance cut worth £285.
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, comes 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.
Scotland's key takeaways
Here are the key takeaways from the 'mini-budget':
- Cap on bankers’ bonuses has been lifted.
- Scottish Government receives more than £600m as a result of tax cuts in the UK.
- No change to the duty on alcohol.
- Planned raises in corporation tax and NI have been scrapped.
- Cost of energy price support will cost £60 billion over six months.
The Bank of England raised interest rate by 0.5% to 2.25% yesterday saying the UK economy may already be in recession.
The Chancellor says these measures will help boost economic growth.
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.