Government departments may have “difficult decisions” ahead, the chancellor has warned, as he called for greater efficiencies in a mini-budget delivering almost £45bn of tax cuts.
In a fiscal statement that included major reductions to stamp duty, corporation tax and income tax for the highest earners, Kwasi Kwarteng suggested he was not willing to use “high” taxes to fund public services.
Instead, he promised to “expand the supply side of the economy through tax incentives and reform” – which will include new investment zones, planning changes and pump-priming – to "deliver higher wages, greater opportunities and crucially fund public services now and into the future”.
Supporting documentation produced by HM Treasury said the combined impact of the tax reduction measures was projected to be £44.8bn less revenue by 2026-27. Kwarteng also told MPs that the impact of the government's proposals to cap the cost of energy prices for households and businesses was likely to cost £60bn over the course of the next six months.
He said the economic interventions were aimed at pushing up the trend of annual GDP growth to 2.5%, but warned that "none of this is going to happen overnight".
Departments will be expected to “work more efficiently” and prioritise growth as part of a “disciplined approach to spending”, Kwarteng told MPs in his fiscal statement this morning.
“Growth is not as high as it should be. This has made it harder to pay for public services, requiring taxes to rise,” the chancellor said.
“So as a government, we will focus on growth – even where that means taking difficult decisions.”
HM Treasury’s supporting Growth Plan blue-book document said Kwarteng would “shortly write to each department asking them to set out how they will prioritise growth within their plans”.
Among the measures set out are proposals to accelerate the disposal of surplus public sector land by allowing departments “greater flexibility” to invest the proceeds of sales over multiple years. The Growth Plan said the move would “encourage the sale of more public land for housing and allow departments and the NHS to reinvest in public services”.
The three-part Growth Plan to “cut taxes, streamline the public sector, and liberate the private sector” includes abolishing the top income-tax rate – applied to people earning over £150,000 – amounting to a tax cut from 45% to 40%. A planned reduction in the basic rate from 20% to 19% will happen a year earlier than former chancellor Rishi Sunak proposed.
Kwarteng used the statement to scrap the 1.25% National Insurance rise that came into effect in April – ostensibly to fund NHS and social-care services. He did not address the gap in funding left by cancelling the so-called health and social care levy, which predecessor Sunak had said would raise some £12bn a year.
The stamp duty threshold for people in England and Northern Ireland will meanwhile rise from £125,00 to £250,000. The first-time buyer threshold will rise from £250,000 to £425,000, and the value of the property they can claim relief on will increase from £500,000 to £625,000.
Kwarteng also announced harsher controls on welfare support, including plans to slash people's benefits if they fail to "fulfil their job commitments”.
He said he would “make work pay” by raising the administrative earnings threshold for Universal Credit – the minimum number of hours UC claimants must work to be exempt from “intensive work search” requirements – to 15 hours a week from January. This follows a previously announced rise from nine to 12 hours a week.
‘Liberating the private sector’
Along with the personal tax reforms, Kwarteng announced he will scrap next year’s planned increase in corporation tax from 19% to 25% – leaving the UK with the G20’s lowest corporation tax rate.
He said the move would “plough almost £19bn a year back into the economy… to reinvest, create jobs, raise wages, or pay the dividends that support our pensions”.
“Every additional tax on business is ultimately passed through to families through higher prices, lower pay, or lower returns on savings,” he added.
The chancellor also confirmed he will scrap the cap on bankers’ bonuses. The cap limited bonuses at 200% of their annual salary was introduced in 2014 to discourage profit chasing in light of the 2008 financial crash. Kwarteng said the cap had not in fact reduced people’s total remuneration as salaries had simply increased.
He also said it had driven businesses out of the UK, adding: “We need global banks to create jobs here, invest here and pay taxes here in London, not in Paris, not in Frankfurt, not in New York.”
“The strong UK economy has always depended on strong financial services sector,” Kwarteng said.
Planned rises in alcohol duty rates were also scrapped.
Investment zones offer set to offer further tax breaks
Elsewhere in the mini-budget, Kwarteng gave details of the government’s plans for new “investment zones” that will offer time-limited tax reliefs and “planning liberalisation” to drive employment and investment opportunities and the delivery of new homes.
The chancellor said the government was already in discussion with around 40 areas interested in hosting the zones, which will be successor growth areas to the Johnson administration’s “freeports”.
Kwarteng’s Growth Plan document said measures under consideration included 100% business-rates relief for firms occupying newly constructed premises in the zones, while existing businesses could potentially get the same relief if they expanded operations.
Other growth-zone tax-break proposals included reliefs on capital allowance, structures and buildings allowance and employers’ National Insurance contributions for newly-hired staff.
Local authorities will also be offered business-rates retention breaks for hosting investment zones.
The Growth Plan said the Department for Levelling Up, Housing and Communities would set out details of the fast-track planning opportunities the zones will offer “shortly”.
Additionally, the mini-budget confirmed plans for new legislation to accelerate the delivery of major infrastructure projects by relaxing requirements for environmental assessments and consultation processes, as well as sector-specific rule changes, such as those relating to onshore wind turbines.
The Growth Plan said the reforms would mean energy infrastructure “gets built more quickly”.