Chancellor Unveils Plan for 'Global Britain'

Can the 'mini-budget' "expand the supply side of the economy through tax incentives and reform"?

The UK government unveiled an extensive programme of tax cuts and business incentives on Friday aimed at making Britain more globally competitive.In what has been dubbed a 'mini-budget', Chancellor of the Exchequer Kwasi Kwarteng told parliament that the changes represented "a new approach for a new era" that would expand the supply side of the economy through tax incentives and reform.He said the new policies would deliver higher wages and greater opportunities, as well as funding public services and enabling the UK to compete with economies around the world.Among the changes announced was a scrapping of the planned increase in Corporation Tax paid by companies on their profits. It had been due to rise from 19 to 25 per cent next year, but the new government under PM Liz Truss believes cancelling the increase will attract more international companies to the UK.Additionally, a planned cut in basic rate of income tax from 20p to 19p in the pound, which had been due to come into effect in 2024, will now be introduced next April.
"That means a tax cut for over 31 million people in just a few months’ time," said the chancellor. "That means we will have one of the most competitive and pro-growth income tax systems in the world."
Meanwhile, the UK's highest rate of income tax - 45 per cent paid on salaries above £150,000 - is to be abolished. The rate on salaries above £50,271 is 40 per cent.Mr Kwarteng also announced the creation of 40 so-called investment zones across England, where business taxes will be reduced and planning regulations on infrastructure projects relaxed.Other announcements included:
  • an end to the current cap on bankers’ bonuses, which was introduced in 2014 in the wake of the financial crisis and which currently limits bonuses to twice a banker's annual salary. The government hopes the move will make UK financial services more competitive with the US and Asia.
  • a scrapping in November of the 1.25p-in-the-pound increase in National Insurance contributions, introduced in April to fund the health and social care sector. The government says that that funding will now come from general taxation.
  • a reduction in the Stamp Duty tax that is paid on property sales in England and Northern Ireland. The threshold at which first-time buyers have to pay the tax is being increased from properties costing £300,000 at present, to £425,000.
The mini-budget came at the end of a week when the government had already announced a £60 billion plan to cap the energy prices paid by businesses this winter, and a controversial decision on Thursday to end the 2019 ban on fracking for shale gas in England.
Miles Celic, CEO of the financial services trade body TheCityUK, described the mini-budget as representing "bold action to create the conditions for economic growth".He said that to achieve growth, the UK must make a "compelling and competitive offer" that will attract capital investment. "This budget has taken some big strides, but no magic bullet exists.
"The UK’s long-term success is also built on a range of other factors such as closing the skills gap, driving innovation, delivering high-quality, right-sized regulation, and setting out a clear path to achieving net zero."Mr Celic said the prime minister had publicly recognised the financial industry's role as an essential enabler within the wider economy. "This function works best when the UK is an attractive place to start and grow a business, providing stability, certainty, and a competitive return on investment."Tony Danker, director-general of the Confederation of British Industry (CBI), hailed the announcements as "a turning point for our economy". He said: "Like Covid, the energy crisis has meant Government has had to spend massively to protect people and businesses. That means we have no choice but to go for growth to afford it.“Today is day one of a new UK growth approach. We must now use this opportunity to make it count and bring growth to every corner of the UK. Fifteen years of anaemic growth cannot be repeated."Mr Danker said the chancellor's plans were "not perfect" but were a good beginning. "The chancellor signalled more proposals to come this autumn and these will be vital to sustain momentum on growth.”Shevaun Havilland, director-general of the British Chambers of Commerce, said businesses across the UK would "enthusiastically welcome" Mr Kwarteng's pledge to focus on economic growth.She said the network of chambers of commerce across the country was "a great believer in giving firms the tools and support they need to create the wealth that funds government tax revenues".Ms Havilland also welcomed the creation of investment zones, adding: “It is also good news to hear the chancellor has woken up to the need to take action on our creaking planning system."Inevitably, the devil will be in the detail of these proposals, and they must strike the right balance between reform and providing for a sustainable future.
"But this is a bold start, and the chancellor must now use this as a springboard to develop a comprehensive, long-term economic strategy.”Kitty Ussher, chief economist at the Institute of Directors, said that businesses across the country would applaud the government’s recognition that raising employers’ National insurance contributions had been a mistake.
"As the Institute of Directors has consistently and repeatedly argued from the outset, this was quite simply a tax on jobs, which businesses had to pay regardless of whether they are profitable," she said.

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