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Mini-budget predictions: What should we expect from Kwasi Kwarteng?

The Standard looks at the moves the chancellor could announce

By
23 September 2022
C

hancellor Kwasi Kwarteng will unveil a mini-budget on Friday to address the cost-of-living crisis.

The Government has put growing the economy at the heart of its policy agenda, with Prime Minister Liz Truss claiming that Treasury “orthodoxy” has stymied growth in the past decade.

But the Chancellor’s fiscal statement takes place against the backdrop of an uncertain economic climate, with fears of a looming sterling crisis and double-digit inflation.

As he prepares to unveil his statement, the Standard looks at what Mr Kwarteng might announce.

Cancelling corporation tax rise

The Chancellor is expected to reverse his predecessor Rishi Sunak’s decision to raise corporation tax from 19 per cent to 25 per cent from next April, claiming this will encourage businesses to keep investing in Britain.

Scrapping the rate rise will cost an estimated £17 billion, according to the Institute for Fiscal Studies (IFS).

Even with the rate rise, the UK’s corporation tax rate was set to be lower than some other major countries. In France, corporation tax stands at 26.5 per cent.

The Institute for Public Policy Research (IPPR) think tank has said that lower corporation tax might not necessarily increase investment, pointing out that the UK had the lowest rate of business investment of any G7 economy in 2019 - despite having the lowest corporation tax rate in the G7.

Scrapping National Insurance rise

Mr Kwarteng has already confirmed this one, announcing on Thursday that the 1.25 percentage point rise in National Insurance introduced by Rishi Mr Sunak will be reversed from November 6.

It had initially been introduced to fund spending on the NHS and social care, though Prime Minister Liz Truss has claimed she will find the funding from general taxation.

But think tanks have criticised the plans, with the Resolution Foundation claiming the tax cuts and energy support package would see Britain’s richest households getting twice as much support with living costs as the poorest households.

However, Ms Truss has argued that her plans are fair as economic growth will be felt through wider society.

“What is important to me is we grow the British economy because that’s what will ultimately deliver higher wages, more investment in towns and cities across the country. That’s what will ultimately deliver more money to people’s pocket,” she said on Tuesday.

The IFS says the reverse in the national insurance hike will cost £13 billion annually.

Stamp duty cut

On Wednesday, The Times reported that radical plans to cut stamp duty are in the pipeline as part of efforts to boost economic growth. Downing Street refused to comment.

Ms Truss believes that a stamp duty cut will encourage growth by allowing first-time buyers to get on the property ladder, according to the newspaper.

Mr Sunak previously cut the stamp duty threshold during the pandemic to £500,000 to help boost the property market.

No stamp duty is currently paid on the first £125,000 of any property purchase, rising to 2 per cent for purchases between £125,001-250,000 and 5 per cent for £250,000-925,000. For more expenssve properties the next £575,000 up to £1.5 million is charged at 10%, and the remainng amount above £1.5m is charged at 12 per cent.

Investment zones

Mr Kwarteng is reportedly considering plans to slash business levies in new “investment zones”, which have been dubbed “full fat freeports”.

Under the plans, selected areas would benefit from a low-tax burden, reduced planning restrictions and regulations tailored on a case-by-case basis.

The Sun On Sunday reported that the new PM is now weighing up whether personal taxes could be cut for people working there.

Mr Kwarteng could announce as many as 12 of the “investment zones” in his mini-budget on Friday, according to The Sunday Times.

Axing the cap on bankers’ bonuses

The Prime Minister appeared to confirm a plan to scrap the cap on bankers’ bonuses when speaking to reporters on Tuesday, arguing she needed to make “difficult decisions” to grow the economy.

The cap was introduced under EU law in 2014. Mr Kwarteng is reported to believe that axing the policy could help spark a “Big Bang 2.0” in the City of London, referring to Margaret Thatcher’s deregulation of financial services in the 1980s.

The plans have face criticism, with a union leader writing to Bank of England Governor Andrew Bailey asking him to denounce the policy.

GMB union leader Gary Smith said: “In planning to scrap the cap on bankers’ bonuses the Prime Minister is sticking two fingers up to workers who are being told by the likes of Mr Bailey to tighten their belts.”

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