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Liz Truss's government just axed the top income tax rate for highest earners

There has been an extremely negative reaction from Labour, SNP and the SDLP on the cuts.

Image: Kirsty Wigglesworth

Updated Sep 23rd 2022, 5:45 PM

UK CHANCELLOR KWASI Kwarteng has abolished the top rate of income tax for the highest earners as he spent tens of billions of pounds in a bid to drive up growth to ease the cost of living crisis.

In a so-called mini-budget axing the cap on bankers’ bonuses and adding restrictions to the welfare system, he argued on Friday 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.

Mini-budget

Kwarteng also revealed his estimate that the two-year energy bills bailout will cost around £60 billion (€67 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.

The Bank also lifted interest rates to 2.25% – the highest level for 14 years.

The package also included a cut to stamp duty and removed the cap on bankers’ bonuses.

Plans to make around 120,000 more people on Universal Credit take active steps to seek more and better-paid work or face having their benefits reduced were also confirmed.

There will also be an introduction of VAT-free shopping for overseas visitors.

Kwarteng said their economic vision would “turn the vicious cycle of stagnation into a virtuous cycle of growth”.

The series of tax cuts are the biggest in 50 years, since a massive tax slash budget in 1972 by Conservative Chancellor Anthony Barber.

london-uk-7th-sep-2022-liz-truss-the-new-prime-minister-holds-her-first-meeting-with-her-newly-formed-cabinet-chancellor-of-the-exchequer-kwasi-kwarteng-attends-todays-cabinet-meeting-credit The UK's Chancellor of the Exchequer, Kwasi Kwarteng Source: Alamy Stock Photo

However, Labour’s shadow Chancellor Rachel Reeves said the strategy amounts to an “admission of 12 years of economic failure” under successive Conservative governments.

The Labour MP likened the Prime Minister and Kwarteng to “two desperate gamblers in a casino chasing a losing run”.

“The Chancellor has made clear who his priorities are today – not a plan for growth, a plan to reward the already wealthy,” said Reeves.

“A return to the trickle-down of the past, back to the future, not a brave new era.”

SDLP leader Colum Eastwood said that it was a “a budget by millionaires for millionaires”.

“Rather than attempting to help the millions of people across these islands who are mired in a cost of living emergency, what we got from the British government today was a budget by millionaires for millionaires,” said Eastwood.

“A decision to remove the cap on bankers’ bonuses at a time when many people’s salaries don’t cover their basic necessities is vulgar in the extreme.

This is the Tory party acting as they have always done, making sure that their wealthy backers and big businesses are well looked after, without a thought for the rest of us. Trickledown economics doesn’t work, it has never worked and all it will achieve is to widen inequalities at a time when those who are struggling have less than ever before.

The new plan has not been welcomed in Scotland, with First Minister Nicola Sturgeon saying that the super wealthy are “laughing all the way to the actual bank”.

On Twitter, Sturgeon said that while the super wealthy would be receiving tax cuts, “increasing numbers” would be forced to rely on food banks “all thanks to the incompetence and recklessness of this failed UK gov”.

Meanwhile, the Welsh Finance Minister has said the decisions made by Kwarteng would not help struggling households.

“Today’s announcements show the UK Government is heading in a deeply worrying direction, with misplaced priorities leading to a regressive statement that will embed unfairness across the United Kingdom,” said Finance Minister Rebecca Evans.

“Instead of delivering meaningful, targeted support to those who need help the most, the Chancellor is prioritising funding for tax cuts for the rich, unlimited bonuses for bankers, and protecting the profits of big energy companies.”

Market reaction

The pound dived to another fresh 37-year low as traders swallowed the cost of the Chancellor’s latest package and potential impact on Government borrowing.

Sterling declined by as much as 0.89% to 1.115 US dollars as Kwarteng spoke in the Commons at 9.30. 

The price of Government borrowing soared even higher as British bond yields rose, amid fears the package had sent the UK markets into meltdown.

Ministers were accused by the Institute of Fiscal Studies (IFS) of “betting the house” by putting Government debt on an “unsustainable rising path”.

The respected financial think tank’s scathing assessment said only those with incomes of over £155,000 (€173,700) will be net beneficiaries of tax policies announced by the Conservatives over the current Parliament, with the “vast majority of income tax payers paying more tax”.

By terming it a “fiscal event” rather than a full budget, Kwarteng avoided the immediate scrutiny and forecasts of the Office for Budget Responsibility.

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