On Friday September 23, the recently appointed Chancellor of the Exchequer, Kwasi Kwarteng, laid out the new budget to the House of Commons. The Growth Plan indicates a drastic change in policy direction through market deregulation and liberalization measures intended to reach a 2.5% trend rate target.
Kwarteng announced the ‘Energy Price Guarantee’, aimed at sheltering consumers from fluctuating global energy prices over the winter. The average household will now pay £2,500 a year on their energy bills for the following two years.
An equivalent scheme will be introduced for businesses, charities, and the public sector but as of yet is only expected to last 6 months. The plan is estimated to cost £60 billion and will be funded through government borrowing.
Truss has stuck to her leadership campaign pledge with the reversal of planned increases on corporation tax (25% by 2023). The tax will now remain at 19% – the lowest rate in the G7.
Similarly, the planned annual investment allowance, the amount companies can invest tax-free, will now remain at £1 million, and will not be reduced to £200,000 as previously planned.
The government is in talks with local authorities in order to create ‘investment zones’ in which businesses will receive tax breaks. Alongside this, EU planning laws and environmental regulations will be streamlined and reduced in an effort to accelerate key infrastructure projects.
In a commons debate, Labour’s Shadow Chancellor, Rachel Reeves, said: “All that they have done is move growth around the country; they have not created it”.
Kwarteng also announced cuts to income tax. The ‘additional rate’ of 45% for those earning over £150,000 is to be entirely scrapped. The highest earners will now fall into the ‘higher rate’ bracket at 40%.
The basic rate of income tax is will also be lowered from 20% to 19%.
In order to help families aspiring to their own home, stamp duty will be cut. Effective immediately, buyers will pay no tax on the first £250,000 of a property’s value, rising to £425,000 for first time buyers.
Government figures suggest first time buyers could save as much as £11,250 in London and the south-east. However, economists from across the political spectrum largely agree that given the market’s reaction to the new budget, rising interest rates on mortgages have the potential to cancel out any savings made by cuts to stamp duty.
In a move to attract global banks and grow the financial sector, the cap on bankers’ bonuses will be removed. The cap was introduced by the European Union in 2013 in an effort to limit banker’s risk taking impulses.
The government has also declared an extra 120,000 Universal Credit claimants will be required to take active job seeking steps or risk having their benefits reduced. New legislation will also require unions to put pay offers to a members vote before resulting into strike action.