Britain’s new government headed by Prime Minister Liz Truss reveals a series of tax cuts and monetary measures to boost the country’s economic growth amid recession threats. The newly appointed Finance Minister, Kwasi Kwarteng on speaking to the House of Commons stated that the government aims at having a new approach that will be focused entirely on growth of the nation’s economy.
In the announcement made by the chancellor, Britain’s basic rate of income tax has been cut down to 19% from the earlier 20% from April 2023 and the 45% top rate tax of higher earners are now abolished, this revision however is not applicable to Scotland. Britain Chancellor also announced that the cap on bankers’ bonus was lifted along with tackling the rise in corporation tax to 19% which was expected to increase to 25% in April 2023, making it the lowest rate in the G-20.
Britain’s mini-budget impacts on various sectors
Britain’s new government also announced a substantial cut on stamp duty that had to be paid when people buy properties in England and North Ireland and around 200,000 people are exempted from paying stamp duty entirely.
In the work and investment sector, the government announces an annual investment allowance, which the companies can invest without tax will remain at 1m pound indefinitely. Change in regulations cause the pension funds to increase the UK investments. Upcoming companies and emerging business startups can now raise up to 250,000 pounds under scheme by the government giving tax assistance to investors.
Kwasi Kwarteng further announced a reduction in price caps on energy which would reduce inflation by 5 percentage points. In unification with Bank of England, the government announced an energy market financing scheme that will offer complete assurance to commercial banks that offer emergency liquidity to energy traders.
Kwasi Kwarteng also announced measures to boost the Investment and infrastructure sector by setting up investment sector in 38 local areas in England. Lands for housing and commercial purpose could now be released with the help of liberalized planning rules and tax cuts in addition to giving up of stamp duties and zero business rates.
These major changes in the economy under the new government was announced shortly after the Bank of England informed that the country’s economy was prone to enter a phase of recession in the third quarter as the interest rates were increased to 50 basis point to counter the high inflation. Kwasi Kwarteng added that U.K had the lowest debt to GDP ratio in the G-7 and reveals plan to further reduce debt as a percentage of GDP.
The announcement of the budget also had market reactions as two-year gilt yields rose by 50 basis points, to a high of 3.997% which was the biggest one-day rout since 2009 while sterling fell 1.9% on the day to around $1.1047 which is the lowest value in 37 years.