British Chancellor Kwasi Kwarteng will on Friday attempt to deliver shock treatment to Britain’s stagnant economy with a 30-point growth package designed to turn “the vicious cycle of stagnation into a virtuous cycle of growth”.
Kwartengs mini-budget will include tax reforms to help struggling self-employed business owners, while scrapping a planned corporate tax hike that would help profitable larger businesses.
The chancellor will sharply increase borrowing to pay for a package of tax cuts and an emergency plan to keep household and business energy bills down, while announcing a series of controversial regulatory reforms.
A ceiling on the banks’ bonus is expected to be removed and environmental legislation will be revised. “We will be bold and unabashed in pursuing growth – even when it means making tough decisions,” Kwarteng will say.
He will also outline regulatory reforms in the City of London intended to unlock billions of pounds of investment from pension funds in infrastructure, part of Prime Minister Liz Truss’ drive to make the British capital the world’s leading financial centre.
Labor believes Kwarteng is sowing the seeds of Conservative Party defeat by announcing tax cuts that disproportionately help the rich and profitable big business, while allowing banks’ bonuses to rise.
Meanwhile, the think tank Institute for Fiscal Studies and the investment bank Citi have warned that Kwarteng must put the public finances on hold an “unsustainable path”.
The chancellor will insist he will maintain “responsible public finances”. But the government’s fiscal policy rule, which says debt must be on track to fall as a share of gross domestic product within three years, is set to be suspended.
The chancellor’s “growth plan”, to be outlined to MPs on Friday, runs to around 30 pages and includes spending on the Treasury, but there will be no new forecasts from Britain’s fiscal watchdog.
Kwarteng’s plan to cut National Insurance and scrap the planned corporation tax rise will cost £30 billion a year. He also plans to cut stamp duty on house purchases.
Labor believes the chancellor could go even further and cut the basic rate of income tax from 20p in the pound to 19p.
The chancellor will only state the cost over six months of his intervention keep household and business energy bills down, although much of the scheme will run longer. The total cost is estimated at £150 billion.
The mini-budget is expected to receive criticism from several sides. The green lobby is likely to react angrily to Kwarteng’s plan to reduce the burden of environmental assessments and rewrite habitat and species regulations to speed up the delivery of 100 major infrastructure projects.
But around 38 local councils and mayoral areas are in discussions with the Treasury about establishment new investment zones in their areas, which would benefit from more liberal planning rules and time-limited tax breaks.
The government is also pursuing changes to how self-employed business owners are taxed to free up small businesses from unnecessary costs.
Truss is committed to reviewing the tax levied on sole traders, freelancers and contractors under so-called IR35 rules, which have been attacked for adding the kind of costs faced by permanent employees without the associated benefits.
The IR35 rules have been revised in recent years, the responsibility shifted from contractors to employers for whether they should be regarded as employees for tax purposes.
As a result, employers fearing large tax bills have chosen not to use contractors, which has had a chilling effect on the freelance economy.
Small businesses have already claimed victory after Kwarteng on Thursday confirmed plans to reverse a rise in national insurance introduced by his predecessor Rishi Sunak from November 6. Business lobby groups had said the increase unfairly penalizes employers across the UK.
The move will cut tax for 920,000 businesses by almost £10,000 on average next year. Craig Beaumont, head of external affairs at the Federation of Small Businesses, said this was a “good moment” for businesses in the UK.
“This marks the end of the ‘fuck business’ era of the previous administration – and finally removes the threat of having the highest small business tax burden since Clement Attlee hanging over us,” he added.