Kwasi Kwarteng has bet the government’s re-election in 2024 on the biggest tax cuts in 50 years after the UK chancellor announced reductions in the top 45% rate of income tax, national insurance and stamp duty worth £45bn.
Facing accusations of a “class war” mini-budget that rewarded the rich more than those on lower incomes, Kwarteng said his efforts to boost growth and energise the economy included helping all households after he brought forward a planned 1p cut in the basic rate of income tax from 2024 to next year.
The top 45p income tax rate on earnings of more than £150,000 a year will be scrapped, leaving the highest rate at 40p. The income tax changes apply in England, Wales and Northern Ireland.
The Treasury acknowledged after the budget that about 660,000 of the highest earners will benefit from the scrapping of the 45p rate, getting back on average £10,000 a year.
A Treasury spokesperson said the chancellor “disagreed” that it was a budget for the rich or that it was “trickle-down economics”, but the aim was that “growing the economy benefits everyone”.
A rise in national insurance of 1.25% brought in earlier this year will be reversed, saving households £330 a year.
Thresholds for paying stamp duty – which applies in England and Northern Ireland – will be increased, cutting the tax paid on purchasing homes.
The threshold at which first-time buyers begin to pay stamp duty will increase from £300,000 to £425,000, and the maximum value of a property on which first-time buyers’ relief can be claimed will also increase, from £500,000 to £625,000. The chancellor said the cuts would be permanent.
Kwarteng also confirmed that caps on bankers’ bonuses would be scrapped.
Promising a new era of growth, he said: “High taxes reduce incentives to work and they hinder enterprise.”
Against a backdrop of high inflation and forecasts that Britain faces a long recession, the chancellor cancelled a rise in corporation tax from 19% to 25% next year.
“In the context of the global energy crisis it is entirely appropriate for the government to take action,” he said, adding that “fiscal responsibility remains essential” and he would be allowing the Office for Budget Responsibility (OBR) to examine the Treasury’s spending plans before the end of the year. The OBR, which provides independent economic forecasts based on the government’s plan, was blocked from assessing the mini-budget by Kwarteng.
The Treasury, when asked why it could not produce OBR forecasts, claimed it would not be able to publish full forecasts in time. It admitted there were no forecasts for how much the growth plan would boost growth, or when Kwarteng hoped to reach the 2.5% growth target.
He is reviewing his fiscal rules but these will not be set out at this stage. The Treasury continued to insist it was not a budget, so therefore was not accompanied by the traditional distributional impact showing how the measures would affect the rich and the poor.
Labour described the mini-budget as a “menu without prices” that rewarded better-off households while gambling with the public finances.
Conservative backbenchers gave an extremely muted response to Kwarteng, unusually refraining from cheering or banging their seats behind the chancellor. Several Tory MPs told the Guardian they were worried about the political implications of giving tax cuts to the rich, while providing little help for most of the population with the cost of living beyond the 1p cut in income tax.
In contrast, Labour MPs were outraged by the measures and buoyed by the idea that voters would reject the Tories, with one shadow cabinet minister saying they thought it would “go down like a bucket of sick” in the “red wall” constituencies.
Financial markets were fearful about the extra borrowing needed to fund Kwarteng’s huge tax cuts, sending the pound plunging below $1.11 for the first time since 1985. The government’s borrowing costs jumped after the two-year borrowing rate doubled from last month to 4%.
Benchmark 10-year gilt prices also weakened, pushing up their yield to the highest since 2011.
Paul Johnson, the director of the Institute for Fiscal Studies, said the tax cuts would cost £41bn in 2024 and £45bn in 2026, making the mini-budget the “biggest tax-cutting event since 1972”.
Recalling the Heath government’s attempt in the early 1970s to boost growth with huge tax cuts orchestrated by the then chancellor, Tony Barber, Johnson said: “Barber’s ‘dash for growth’ then ended in disaster. That budget is now known as the worst of modern times. Genuinely, I hope this one works very much better.”
Kwarteng also announced planned rises in beer, wine and spirit duties would be cancelled and said he would cut welfare benefits if unemployed people failed to comply with the requirements to search for a job.
He said it was outrageous that strikes were bringing vital services to a halt. He said he would bring forward legislation making it illegal to hold a strike from taking place until “talks have genuinely broken down”.