LONDON -- The U.K. government on Friday scrapped planned corporate and individual tax hikes and removed a cap on bankers’ bonuses in contentious bid to boost the faltering economy.
Treasury chief Kwasi Kwarteng announced in his “mini budget” Friday that he was reversing a hike in national insurance taxes that was introduced by the previous administration.
Kwarteng’s predecessor, Rishi Sunak, imposed the increase to pay for social care and a backlog in the public health service.
Kwarteng, in his statement to lawmakers at Parliament, also announced income tax rates will fall next year as part of the government's moves to bolster the economy.
THIS IS A BREAKING NEWS UPDATE. AP’s earlier story follows below.
LONDON (AP) — The U.K. government is expected to publish an emergency budget statement Friday outlining how it plans to slash taxes, tame soaring inflation and boost economic growth as a recession looms on the horizon.
Treasury chief Kwasi Kwarteng’s “mini-budget,” to be presented to lawmakers, is expected to scrap a planned increase in corporation tax.
Prime Minister Liz Truss, who became the U.K.’s leader less than three weeks ago, has repeatedly stressed that her Conservative government’s core mission is lowering taxes to drive economic growth. She declared this week that she is ready to make “unpopular decisions” such as boosting bankers’ bonuses to attract jobs and investment.
The Institute for Fiscal Studies predicts that even though Friday’s statement isn’t a full budget, it looked set to be the U.K.’s “biggest tax-cutting fiscal event” for more than 30 years.
“Taxing our way to prosperity has never worked. To raise living standards for all, we need to be unapologetic about growing our economy,” Kwarteng said Thursday. “Cutting tax is crucial to this.”
Before his statement Friday, the Treasury chief confirmed that he was reversing a hike in workers’ national insurance contributions that was introduced by the previous administration. Kwarteng’s predecessor, Rishi Sunak, imposed the increase to pay for social care and a backlog in the public heath service.
Soaring inflation and a cost-of-living crisis driven by steeply climbing energy costs are the biggest immediate challenges facing Truss’s government. Inflation stands at 9.9%, near the highest Britain has seen since the 1980s, and is predicted to peak at 11% in October.
In the past two weeks, the government has announced that the government will cap gas and electricity bills for households and businesses, amid fears that the poorest won't be able to afford to heat their homes and companies will go bust this winter.
But U.K. officials haven't disclosed how they plan to finance the relief measures, which analysts say could run to tens of billions of pounds.
Some economists have warned about the sharp rise in government borrowing.
The Institute for Fiscal Studies warned that borrowing is set to hit 100 billion pounds ($113 billion) a year even after the temporary energy bills support measures come to an end in two years’ time. The research institute said that with such levels of debt, officials’ claims that reducing tax rates would lead to sustained economic growth was “a gamble at best.”
Paul Johnson, director of the institute, also said that the Conservative government’s measures to help millions pay their energy bills won't reverse a steady drop in living standards.
“I am afraid that the energy price shock has made us poorer and we will be worse off,” he said. “The government can spread the pain over time and between people, but in the end it is not going to be able to magic it away.”
On Friday, Kwarteng is expected to announce new “investment zones” across England where the government will offer tax cuts for businesses and help create jobs. He will also give details on how the government aims to accelerate dozens of major new infrastructure projects, including in transportation and energy.
Truss — who is inspired by Margaret Thatcher's small state, free market economics — has insisted that growing the economy and tax cuts for businesses will benefit everyone in the country.
But critics say Truss's right-wing instincts are the wrong response to the U.K. economic crisis.
