Truss government announces biggest tax cut in half a century

The new finance minister, Kwasi Kwarteng, presents cuts valued at 61,000 million euros to cut inflation in halfCuts the income of those who earn the most and stops the rise in rates for companies, Social Security and drinks alcoholic The pound sterling and the British markets collapse for fear that these measures will increase the debt and feed inflation The new Conservative government of Liz Truss has presented this Friday its first budget since it came to power on September 6 with a series of measures to boost the ailing British economy which is on the verge of recession with food prices and energy bills skyrocketing. The so-called “mini-budget”, presented in parliament by Finance Minister Kwasi Kwarteng, is by no means small and includes the largest tax cut in fifty years. Kwarteng announced the cut in the income tax of individuals at the top, to those who earn the most, and the elimination of the 6% rise in the tax for companies (which it will maintain at 19%) and the 1.25% of Social Security (which will remain at 12%). And he stopped raising taxes on beer, wine and other alcoholic beverages. He also announced that he will lift the limit imposed on bankers’ bonuses. “We need global banks to create jobs here, invest here and pay taxes in London, not Paris, not Frankfurt, not New York,” Kwarteng said. The bonus cap only caused bankers’ base salaries to rise or boosted activity outside of Europe. It never capped total compensation and we won’t sit around pretending the opposite is the case, so we’re getting rid of this cap.” Banks began to leave the City of London, then the world financial center, in 2016 as a result of Brexit. Barber’s precedent He has also reduced the tax for home buyers to spur the property market. Buyers will not have to pay 2% on the first 250,000 pounds (285,000 euros) -before it was 125,000 (142,000 euros)-. The Bank of England announced this Thursday the rise in interest rates half a point yesterday to 2.25%, which represents an increase in mortgages of 600 pounds (690 euros) per year. These cuts are valued at 45,000 million pounds (51,000 million euros) and represent the largest reduction in rates since 1972, when Anthony Barber, the then finance minister of the Conservative government of Edward Heath, presented a budget to lower inflation and remove the country from economic stagnation and to be able to win the elections scheduled for two years later, but his measures generated the opposite effect. They provoked a rise in inflation, public sector protests and strikes to raise wages and forced Barber to rectify and introduce anti-inflation measures a few months later. Heath’s Conservatives ended up losing the 1974 election to Labour. £45 billion of tax cuts. This is the biggest tax cutting event since 1972. 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.— Paul Johnson (@PJTheEconomist) September 23, 2022 Kwarteng assured that with this set of measures he hopes to reduce inflation by up to half, to 5%, and cause growth in the economy of 2.5% for this year. This was the central issue in this summer’s Conservative primaries between Liz Truss and Rishi Sunak. Sunak was Johnson’s finance minister for the past two years and was betting on a tax hike in order to reduce inflation, which is now at 10.1% and is expected to soar to 14% in winter. In fact, part of the Truss and Kwarteng announcements consist of reversing measures announced by Sunak when she was responsible for the Treasury. In other words, reversing measures announced by the same Conservative government that Truss and Kwarteng were in, a fact that reminded them of the finance officer of the Labor opposition, Rachel Reeves, that they were trying to fix the mess that they themselves had created. “Menu without prices”“This is the beginning of a new era,” Kwarteng said, raising his voice in the center of parliament without much conviction. Truss was elected only with the vote of 80,000 party members, which represents 0.12% of the total of 67 million Britons. She does not have popular support. Truss and her government hope that her measures will reactivate the economy and cause the opposite effect than Barber in order to win the general elections scheduled for the end of 2024. “This plan is the admission of twelve years of errors by conservative governments [desde que los ‘tories’ regresaron al poder de mano de David Cameron en 2010] -lamented Labor Reeves-, the fault lies with the cycle of stagnation of these twelve years. This budget is not based on data, it is like a menu without prices”. #UPDATE The new UK government’s plan to cap soaring energy bills for households and businesses will cost about £60 billion ($68 billion) in the first six months, finance minister Kwasi Kwarteng tells parliament as he delivers a mini-budget. pic.twitter.com/VrI9DdsEcS— AFP News Agency (@AFP) September 23, 2022 These cuts were accompanied by an aid package valued at 60,000 million pounds (69,000 million euros) in the next six months to reduce the receipt of electricity and gas that will rise 30% in October and will double in the coming months, some measures already anticipated on September 8 (before the death of the queen) and that include limiting the ceiling of the energy bill at 2,500 pounds (2,850 euros) per year on average, limit the ceiling for businesses and ensure the liquidity of banks. “We expect the cost to come down as we negotiate new long-term energy contracts with suppliers. [dentro de seis meses]”, Kwarteng said. The anti-strike law The finance minister also announced new legislation to limit the current wave of public sector strikes to force unions to vote on the government’s proposals in negotiations. Last July, the Conservative government already approved reversing the law that prevented companies from hiring temporary staff to fill the vacancies of striking workers and to prohibit picketing and to increase the fines for companies that prevent the hiring of temporary . The country’s main unions want to organize the first general strike in the country since 1926. Christina McAnea, general secretary of Unison, one of the main unions in the country, criticized the “mini-budget”. “The government has abandoned leveling to go on an all-out offensive to make the richest even richer,” she said. By leveling he meant Johnson’s 2019 election promise to level the standard of living in the north of England (the poorest part) to the south (the most developed part) and which gave him the vote of traditional Labor voters in the northern industrial areas. “In the midst of a huge cost-of-living crisis, this is not the time for economic experiments that are doomed to fail,” McAnea added. Markets spooked Kwarteng also announced new legislation to scrap parts of the Brexit Treaty protocol signed by Boris Johnson in January 2020 regarding the Northern Irish border. Before the summer parliamentary recess, the lower house of parliament already approved a law in this regard and the approval of the upper house is still pending. The Truss government wants to unilaterally eliminate border controls despite the European Commission’s threat to denounce the United Kingdom for non-compliance with international agreements and despite the threat of starting a trade war. The Conservatives have an absolute majority in Parliament. Kwarteng’s “mini-budget” spooked the markets. Both sterling and the FTSE 100 market fell amid concerns that this tax cut will increase debt and fuel inflation. Sterling sank 2% against the dollar to just over $1.10, the lowest level since 1985 and threatening its lowest level on record. While the FTSE 100 also fell 2%.