Income tax will be cut by one penny, Chancellor Kwasi Kwarteng has announced, as part of a series of measures aimed at boosting economic growth.
The reduction in the basic rate from 20% to 19% will be introduced in April 2023 – a year earlier than planned.
At the same time, the top tax of 45% will be abolished with a single higher band of 40%.
The planned increase in corporation tax from 19% to 25% will also be repealed, while stamp duty will be cut for home buyers.
The chancellor had already confirmed the National Insurance rise introduced by Boris Johnson’s government to pay for social care and tackle the NHS backlog will be reversed on November 6.
Economists have described the Chancellor’s announcement as the “biggest tax cut event since 1972”.
It is understood the tax cuts will cost £45 billion.
In his Commons statement, the Chancellor also announced:
- Customs frozen on beer, wine, cider and spirits
- Caps on bankers’ bonuses will be removed as part of wider city regulation
- New investment zones are created with targeted tax breaks and relaxed planning laws
- Plans to speed up major infrastructure projects, including roads, railways and energy projects
- Moves to put tougher terms on unions wanting to strike with pay offer to vote
The government claims the action being taken will help boost economic growth and raise taxes to fund public services.
But critics argue the measures are a risk when public debt is already high and the cost of borrowing is rising.
Sir. Kwarteng said economic growth was not as high as it should be, arguing that this had “made it harder to pay for public services” and in turn led to higher taxes.
He said: “We need a new approach for a new era, focused on growth.
“Our medium-term goal is to achieve trend growth of 2.5%. And our plan is to expand the supply side of the economy through tax incentives and reforms.”
He said this will provide higher wages, greater opportunities and fund public services.
Sir. Kwarteng added: “For far too long in this country we have indulged in a battle of redistribution. Now we need to focus on growth, not just how we tax and spend.
“Today we have cut stamp duty, we have allowed businesses to keep more of their own money to invest, innovate and grow, we have reduced income tax and national insurance for millions of workers, we are securing our place in a highly competitive global economy with lower corporation tax and lower personal tax.
“We promised to prioritize growth. We promised a new approach for a new era. We promised to unleash the enormous potential of this country. Our growth plan has delivered on all these promises and more.”
Labour’s shadow chancellor Rachel Reeves claimed the chancellor’s statement was an “admission of 12 years of economic failure” by the government.
Mrs Reeves told MPs: “We have had six so-called growth plans from the Conservatives since 2010… a litany of failure every single one of them.
“The Prime Minister and the Chancellor are like two desperate gamblers in a casino chasing a losing race.”
She added: “It is all based on an outdated ideology that says if we simply reward those who are already wealthy, the whole of society will benefit.
“They have decided to replace leveling up with trickle down.”
Lib Dem leader Sir Ed Davey said: “City bankers will pop the champagne while struggling families worry about how they can afford the weekly shop.
“That’s not a plan, that’s a recipe for disaster.”
The chancellor’s statement also sharply divided opinion beyond Westminster.
CBI chief Tony Danker said: “Today is day one of a new growth approach in the UK. We must now use this opportunity to make it count and bring growth to every corner of the UK. Fifteen years of anemic growth cannot be repeated .”
Shevaun Havilland of the British Chambers of Commerce (BCC), said: “Businesses will welcome many of the measures announced today which will boost economic growth, relieve cost pressures and encourage investment.”
But TUC general secretary Frances O’Grady said: “At the first opportunity Liz Truss is holding down wages and lining the pockets of big business and City bankers.”
Rebecca McDonald, chief economist at the Joseph Rowntree Foundation said: “This is a budget that has deliberately ignored families struggling through a cost-of-living emergency and instead targeted the wealthiest.”
The chancellor has also faced criticism for refusing to publish an economic forecast from the independent Office for Budget Responsibility (OBR) alongside the mini-budget, sparking claims he is avoiding scrutiny.
The lack of OBR data means there will be no independent analysis of whether the announcements break the government’s existing budget rules or their impact on growth.
The Conservative chairman of the Treasury Select Committee, Mel Stride, said it meant there was a “huge void” at the heart of the statement.
In response, Mr Kwarteng said the OBR would produce a forecast “before the end of the calendar year”.
Paul Johnson, of the Institute for Fiscal Studies, called the chancellor’s statement “absolutely extraordinary”.
He said: “It was like having a whole new government.
“This was the biggest tax cut event since 1972, it’s not very small. It’s been half a century since we’ve seen tax cuts announced on this scale.”