The British government presented on Friday the most radical package of tax cuts since 1972, reducing the tax burden on both employees and companies, and at the same time announced a significant increase in borrowing, all in an attempt to stimulate potential growth on long term of the economy, reports Reuters.
Finance Minister Kwasi Kwarteng has reaffirmed Prime Minister Liz Truss’s aim to double Britain’s annual economic growth rate to 2.5% and for the first time has put forward a figure for the new Prime Minister’s spending plans .
“Our plan is to expand the supply side of the economy through tax cuts and reforms… Thus we will transform the vicious cycle of stagnation into a virtuous cycle of growth,” Kwasi Kwarteng declared in Parliament.
Among the measures announced on Friday is the reduction of the top rate for income tax, from 45% to 40%. Thus, starting from April 2023, the 629,000 taxpayers who earn more than 150,000 pounds per year will no longer pay a maximum rate of 45% but a 40% tax rate that applies to those with earnings over 50,271 of pounds per annum. In parallel, the basic income tax rate will be reduced to 19% starting in April 2023, a year earlier than expected. “This means a tax cut for 31 million people in just a few months,” said Kwasi Kwarteng.
The British Chancellor of the Exchequer has also announced that stamp duty on the purchase of a home will be reduced to enable families to afford to buy a house, so that the threshold from which this tax is applied will double to £250,000 ($280,000).
Furthermore, the VAT exemption for overseas visitors shopping in the UK will be reintroduced in a bid to boost the retail sector. “Britain receives millions of tourists every year and I want our streets and airports, our ports and shopping centers to feel the economic benefits. That’s why we’ve decided to introduce VAT-free shopping for overseas visitors,” announced Kwasi Kwarteng , quoted by Agerpres.
Other measures announced on Friday aim at limiting the right to strike in the event of the failure of negotiations between unions and employers, the creation of 38 investment zones, with reduced regulations for those who want to start a business, the reduction of building permits, the cancellation of a scheduled increase in excise duties on alcohol and removing a cap on bonuses paid to bankers.
The whole package of measures, estimated to cost £45 billion a year in 2026, is the biggest tax cut since 1972, according to the Institute for Fiscal Studies think tank. “It’s been half a century since we’ve seen tax cuts of this magnitude,” said Institute for Fiscal Studies director Paul Johnson.
Immediately after the announcement of these plans, yields on British Government bonds posted their biggest daily rise in 13 years, sterling fell to a 37-year low against the dollar and British company shares hit the lowest level in the last two months.