The UK faces “really tough times”, the Prime Minister said on Friday ahead of the mini-budget announcement that is expected to include billions of pounds of tax cuts.
Liz Truss promised the “growth plan will deliver better jobs, more funding for public services and higher wages” at a time when Britain faces a cost-of-living crisis, soaring inflation and climbing interest rates.
“We do face really tough times,” Ms Truss said.
“We’ve got the appalling war in Ukraine perpetuated by Putin, which has raised energy prices. We have the aftermath of Covid, which caused a huge economic shock to the global economy.
“And that is why it’s so important that we act with urgency to get things moving in Britain, to get those jobs and growth into communities up and down the country.”
The Chancellor @KwasiKwarteng and I know what a great country this is.
Our Growth Plan will unleash our potential and deliver better jobs, more funding for public services and higher wages for the British people.
The action starts now. 🇬🇧 pic.twitter.com/UWJQ6wChaP
— Liz Truss (@trussliz) September 23, 2022
He has already confirmed that the national insurance hike introduced by his predecessor Rishi Sunak to pay for social care and tackling the NHS backlog will be reversed.
Mr Kwarteng is also set to axe the planned increase in corporation tax from 19% to 25%, and scrap the cap on bankers’ bonuses as part of wider City deregulation designed to boost growth.
Mr Kwarteng will vow to end Britain’s “cycle of stagnation” through a package of tax cuts, infrastructure reforms and deregulation.
He wis expected to unveil a package of over 30 measures as part of the Treasury’s “Growth Plan” to kickstart the UK economy, including relief for households facing high energy bills and the delivery of around 100 major infrastructure projects.
Ministers are also in discussion with local authorities in the West Midlands, Tees Valley, Somerset and other regions to establish investment zones, which will offer “targeted” tax cuts for local businesses. The Treasury claim this will empower firms to “increase productivity” and create new jobs.
Investment zones will also benefit from liberalised planning rules to allow for more land or housing and commercial development, Mr Kwarteng will tell MPs. Negotiations between councils and developers over affordable housing contributions will also be scrapped and replaced with a set percentage of affordable homes.
“The time it takes to get consent for nationally significant projects is getting slower, not quicker, while our international competitors forge ahead. We have to end this,” Mr Kwarteng is expected to say.
Mr Kwarteng is expected to add: “Growth is not as high as it needs to be, which has made it harder to pay for public services, requiring taxes to rise. This cycle of stagnation has led to the tax burden being forecast to reach the highest levels since the late 1940s.
“We are determined to break that cycle. We need a new approach for a new era focused on growth.
“That is how we will deliver higher wages, greater opportunities and sufficient revenue to fund our public services, now and into the future.”
The Chancellor already confirmed ahead of his mini-budget that the national insurance hike introduced by Boris Johnson's government to pay for social care and tackling the NHS backlog will be reversed.
Mr Kwarteng’s mini budget comes at a time of acute economic uncertainty, with the Bank of England on Thursday raising the key benchmark interest rate to 2.25 per cent – the highest it has been since December 2008. Inflation is expected to strike a new 40-year-high of “just below 11 per cent” despite the Government’s action to freeze energy bills, the Bank said.
In a gloomy forecast, the Bank said the UK economy was already likely to be in recession with GDP to fall by 0.1 per cent during the current financial quarter. Downing Street said that forecasts can “fluctuate and change”.
The Chancellor has been criticised for announcing the package of reforms without an independent economic forecast from the Office for Budget Responsibility (OBR), which is usually published alongside a budget.
Torsten Bell, the chief executive of the Resolution Foundation, said it was “not a good idea to be announcing large, permanent tax cuts, without an underlying economic forecast”.
Earlier this week, the Commons Treasury Committee wrote to Mr Kwarteng, insisting the fiscal event should be accompanied by OBR data.
Responding on Thursday, Mr Kwarteng said he would provide a timeline for an OBR forecast during his mini-budget.
The Institute for Fiscal Studies (IFS) think tank said the strategy to drive growth was "a gamble at best" and that ministers risked putting the public finances on an "unsustainable path".
The IFS calculated that the combination of higher spending and tax cuts means Government borrowing is set to hit £100 billion a year - more than double the official forecasts last March.
Markets in London and across Europe slid in reaction to the interest rate rise, with the FTSE ending the day down by 78.12 points.
Meanwhile, sterling held fairly steady despite the jump in interest rates, recovering somewhat from intra-day lows.
The pound was down 0.07 per cent against the dollar at 1.126 but was 0.10 per cent higher against the euro at 1.146 at the close.