- Chancellor Kwasi Kwarteng on Friday announced a mini-budget in its bid to pump fresh energy into the economy.
- The measures include tax cuts and a reduction in stamp duty, among others.
In its attempts to revive the ailing economy, the UK government has come up with a mini-budget. Calling it the 'Growth Plan', Chancellor of the Exchequer Kwasi Kwarteng unveiled his first fiscal statement in the House of Commons on Friday, announcing the biggest tax cuts since 1972.
The government's latest announcements are focused on increased spending and tax cuts, which dominated PM Liz Truss' campaign for the premiership.
However, the market did not take the budget positively as the benchmark FTSE 100 index extended its falls following the announcement. The index fell over 170 points or nearly 2.5% at around noon, while the mid-cap-focused FTSE 250 was also down over 2%. Investors feared that the mini-budget might send the country's debt levels soaring and drive up the already skyrocketing inflation.
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Pound Sterling also slumped 2% against the dollar to slightly above $1.10, reaching the weakest levels since 1985.
Mini-budget a glance
In the mini budget, the Chancellor slashed the top income tax rate for the highest earners. This will bring the highest rate down from 45% to 40%, benefiting the highest earners. From April, an estimated 629,000 people earning more than £150,000 annually will pay 40% income tax instead of 45%. The basic income tax rate will also be reduced from 20% to 19% from April next year.
Stressing that high taxes reduce the incentives to work, Kwarteng argued that tax cuts are crucial to "solve the riddle of growth".
Besides, the stamp duty for homebuyers has also been slashed. Earlier, stamp duty on the first £125,000 of a property's value was not charged. Now, this has been doubled to £250,000. For first-time buyers, the threshold has been raised from £300,000 to £425,000, while the value of properties that first-time buyers can claim relief on will be hiked to £625,000 from £500,000. These cuts would be permanent, Kwarteng said.
For businesses, the Chancellor cancelled the planned rise in corporation tax. Earlier this year, the government raised it from 19% to 25% from April 2023. The tax reversal will make the country attractive to businesses, Kwarteng said.
The Chancellor's mini-budget comes a day after the Bank of England had raised the interest rates by half a percentage point, taking it to 2.25%. The new rate, almost five times the bank's 2% target, is aimed at curbing the skyrocketing inflation, which is nearly in double digits and is projected to rise further from October.