Last Friday, the country waited with bated breath for Chancellor Kwasi Kwarteng to announce his mini-budget, or ‘fiscal statement’. Since the revealing his plans, the pound plummeted severely – though has since recovered – mortgage products have been pulled, and the reputation of the UK economy lies in tatters.
So what did the mini-budget actually contain? Kwarteng’s statement contained the biggest British tax cut in 50 years, cutting the basic rate of income tax from 20p per pound to 19p, effective as of next April. National insurance is due to be cut, with tax on earnings over £12,570 a year dropping from 13.25% to 12%, meaning that 28 million people will retain an extra £330 a year each – a reversal of Rishi Sunak’s earlier plan to raise the rate. Stamp duty, a tax paid when purchasing property, will be significantly reduced, so no tax will be paid on the first £250,000, which is double the current floor of £125,000, and for first-time buyers, the threshold will increase from £300,000 to £425,000, which is estimated to lift 200,000 people a year out of paying stamp duty at all.
Controversially, the current cap on bankers’ bonuses has been scrapped, as has the top rate of income tax, bringing the rate from 45% to 40% for those earning over £150,000 per year. Kwarteng additionally confirmed the pledge made by Liz Truss to cancel the planned rise in corporation tax that was due to increase from 19% to 25% in April, with the intended effect of the UK having the lowest rate of corporation tax in the G20, a move the government hopes would bring in further global investment.
Further, plans revealed a deduction in people’s benefits if they fail to fulfil job commitments. Currently, on universal credit, a ‘light touch’ job search kicks in if you work over 9 hours a week on the national living wage. From January, this will be 15 hours, impacting roughly 120,000 people who will face benefit sanctions if they fail to follow the new rules.
Government plans for 38 new low tax investment zones over the country were also confirmed, with reduced business taxes to encourage investments and relaxed planning rules, as well as a cancellation of the alcohol duty rises originally planned for next year. VAT-free shopping has been introduced for overseas visitors, and finally, in response to the disruptive strikes faced by the country over the summer, the plan to legislate to impose new conditions on unions wanting to strike were revealed. This forces workers to provide a ‘minimum service level’ if they walk out in critical sectors, and will ensure that unions put any pay offers to a member vote, which will ensure that strikes can only be called if negotiations truly break down.
Upon its announcement, the budget was immediately subject to widespread criticism, with Miatta Fahnbulleh, the chief executive of the New Economics Foundation referring to it as ‘totally divorced from reality’, and many pointing out the unfairness of tax cuts falling on those on the highest incomes compared to those on an average salary.
In an interview following his mini-budget, Kwasi Kwarteng insisted that he remained calm, asserting that his approach was based on a fear of low growth, and fuelled by a desire to grow the economy.
Kwarteng seemingly remained too calm, with the announcement, along with promises of further tax cuts, having immediate effects on the economy. The pound plummeted almost unbelievably, quickly reaching a 37-year low. On Monday, the pound fell to a record low of £1.03 against the US dollar. By Wednesday, the Bank of England felt the need to intervene, triggering an emergency £65 billion bond-buying programme and shelving plans to sell off long-held bonds in an attempt to minimize the havoc wreaked by the announcement. The week continued with over 40% of mortgage deals withdrawn from the market by Thursday amid expectations that the Bank of England will raise its base rate.
As the weekend begins, the next major event to watch out for is the Conservative party conference, taking place from Sunday to Wednesday in Birmingham, where both Kwasi Kwarteng and Liz Truss will take the stage, alongside health secretary Therese Coffey and home secretary Suella Braverman, amongst others. The financial crisis and 33-point lead that a YouGov/Times poll gives Labour are likely to set nerves jangling in Number 10, with dozens of Tory MPs promising to stay away from conference and others openly expressing their displeasure at the week in September.