Kwarteng concludes with two announcements about income tax.
He says the top rate of income tax – the 45% rate for earnings over £150,000 – is being abolished altogether.
He says Labor never had a 45% rate of income tax when it was in power.
And he says the government will cut income tax by 1p in the pound from April next year. That is one year earlier than planned, and it will take the rate down to 19%, he says.
This means that we will have one of the most competitive and progressive income tax systems in the world.
That’s it. I have finished the speech.
This is from Ashwin Kumar, a modeling expert and professor of social policy at Manchester Metropolitan University.
Kwasi Kwarteng’s mini-budget has been compared to the budget presented by Anthony Barber, Tory Chancellor in 1972.The resulting ‘Barber boom’, then bust, was deemed reckless. Gripped by sluggish growth and low investment, the UK decided to solve its problems by embarking on a “dash for growth” – spending big and cutting taxes. Barber set growth targets of 10% for the following two years and shaved £1 billion off income tax. His budget from him did grow the economy but inflation surged. This was worsened by the hike in oil prices following the 1973 Yom Kippur War. Within 18 months Barber did a U-turn, bringing in a deflationary budget, and Edward Heath’s government was forced into introducing an incomes policy (wages freeze).
This is how the Guardian reported it at the time.
The Treasury acknowledged after the budget that around 660,000 of the highest earners taking home more than £150,000 a year will benefit from the scrapping of the 45p rate, getting back on average £10,000 a year. The overall costs of the measures are forecast to be around £2bn.
The Treasury was asked why it could not produce the Office for Budget Responsibility forecasts, and claimed it would not be able to publish full forecasts in time. It admitted there were no forecasts for how much the growth plan would increase growth, or when Kwarteng hoped to reach the 2.5% target. He is reviewing his fiscal rules, but these will not be set out at this stage. They continued to insist it was not a budget, so therefore it was not accompanied by the traditional distributional impact showing how the measures will affect both rich and poor.
A Treasury spokesperson said he “disagreed” that it was a budget for the rich or that it was “trickledown economics” but the aim was that “growing the economy benefits everyone”.
Conservative backbenchers gave an extremely muted response to Kwarteng, unusually refraining from cheering or banging their seats behind the chancellor. Several Tory MPs told the Guardian they were worried about the political implications of giving tax cuts to the rich, while providing little help for most of the population with the cost of living beyond the 1p cut in income tax.
In contrast, Labor MPs were both outraged by the measures and buoyed by the idea that voters would reject the Tories, with one shadow cabinet minister saying they thought it would “go down like a bucket of sick” in the Red Wall.
The selloff in the pound is gathering pace – sterling is down two cents against the US dollar.
At just $1.105, sterling is getting worryingly close to the $1.10 level.
The pound has also shed a eurocent against the euro to €1,132 – this sterling slump isn’t just about the strong dollar.
neil wilson of Markets.com says there is a “fire sale of UK assets” that is “absolutely horrible to watch”, as UK government bonds prices tumble too.
The reaction in the bond market to the misnamed mini-Budget (it was anything but mini!) is striking with yields surging after the chancellor unveiled sweeping tax cuts that abandon any semblance of fiscal discipline.
It means more borrowing and more borrowing costs. This is not the reaction any chancellor wants from a budget but what else could he expect?
The UK’s FTSE100 index of blue-chip shares is also under real pressure, down over 2%.
It has just fallen through 7,000 points for the first time since June, with European stock markets also being hit by fears of a looming recession.
Our Business liveblog has more details:
Campaigners and charities have described the mini-budget measures as a ‘hammer blow’ to the poor.
Becca Lyon, head of child poverty at Save the Childrensaid:
The prime minister said she would deliver on the cost-of-living crisis. Instead, the UK government has delivered tax cuts to help the richest and a hammer-blow to low-income families.
The chancellor has prioritized bankers’ bonuses over helping vulnerable children through the cost-of-living crisis, whose hard-working parents face impossible choices.
Today’s announcements overwhelmingly benefit the country’s wealthiest households, meanwhile almost four million children risk going cold and hungry this winter.
Alison Garnham, chief executive at the Child Poverty Action Groupsaid:
Today was a vital opportunity to provide reassurance and support to those who need it the most – but instead the Government risks a collision with reality, and the four million kids currently living in poverty in the UK will be forced to pay the price.
Imran Hussain, director of policy and campaigner at Action for Childrensaid:
If the new chancellor has money to spend on tax cuts for those who are relatively better off, then he has the money to spend throwing a lifeline to low-income families who are desperately struggling with the cost-of-living crisis. Many now face a bleak Christmas.
Whilst the energy price guarantee will help offset the near apocalyptic rises that had been predicted, it doesn’t address the mounting pressures families face with food, fuel, housing and other costs that continue to climb.
And Mark Russell, chief executive at the Children’s Societysaid:
Changes to the tax system right now are barking up the wrong tree… We need to see far more direct support for families bearing the brunt of the cost-of-living crisis.
In the Commons MPs, particularly Tory MPs, sometimes respond ecstatically when they hear a chancellor from their party deliver a budget that they think will be popular. What was remarkable about today was that Conservative backbenchers did not respond like that. Some of them did respond very enthusiastically (“How refreshing to hear some Conservative policies at last,” said Richard Drax), but many of them, without being overtly critical, did signal reservations. Aubrey Allegretti wrote up some examples at 10.45am. Here are some more.
Kevin Hollinrake said that alhtough growth and cutting taxes were Conservative principles, “balancing the books” was a Tory principle too. He asked Kwasi Kwarteng:
Can he confirm as he seeks to balance the books in the future, because of course there will be a higher deficit either way on this announcement, he will not do so by cutting infrastructure investment in the north?
Sir Bob Neil said the Conservatives should stand for sound money. He said:
I also welcome the changes to stamp duty, but will [Kwarteng] bear in mind, as I’m sure he does as a Conservative, that we also believe in sound money and that we must keep an eye on inflation? Because we do not want the benefit of the stamp duty cut to be eroded for many homeowners by the increased mortgage costs.
and Sir Jeremy Wright warned about the risk of higher interest rates. He said:
would [Kwarteng] also agree that confidence will evaporate if people’s costs on their mortgages increase further than the benefits that they gain from tax reductions, and will he do all he can to make sure that doesn’t happen?
Business organizations have warmly welcomed the mini-budget.
This is from Tony Danker, the general manager of the CBI.
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 anaaemic growth cannot be repeated.
Taking action to get Britain’s economy moving again by beginning construction on transport and green infrastructure projects shows immediate delivery. Planning reform is long overdue.
This is from Shevaun Havilland, the CEO of the British Chambers of Commerce.
Businesses across the UK will enthusiastically welcome the chancellor’s pledge to focus on economic growth and speed up new infrastructure development.
Kitty Usher, the chief economist at the Institute of Directors, also welcomed the plans.
This is a good news day for British business. In a time of low confidence and economic uncertainty, the new chancellor’s emphasis on going for growth will be very welcome to firms of all sizes across the UK. Taken together with the energy bills relief scheme, the package as a whole will make it easier for businesses navigating a challenging economic environment in the coming months.
But she said there were concerns about whether the measures were affordable.
However, we are concerned that the chancellor had not asked the OBR to undertake its usual independent assessment of the impact of its proposals on government debt and the wider macroeconomy. Without this, neither businesses nor parliament have the reassurance that the scale of this intervention is affordable and so does not jeopardize overall economic stability.
Here is the headline on the Bloomberg UK homepage. Bloomberg is a news service primarily for the City, which is normally rather cautious in its coverage.
desde Mark Drakeford, the Welsh prime minister
In the Commons Andrew Mitchell, the Conservative former international development secretary, asked Kwasi Kwarteng if he could confirm that the UK was on course to return aid spending to 0.7% of national wealth in 2024. Kwarteng refused to give that commitment. I replied:
We’re always looking at our manifesto commitments and given our leadership in this I hope we can come to the 0.7% as is practicable and the public finances allow.
The UK’s Debt Management Office has confirmed that Britain’s borrowing needs will arise this year, to pay for the tax cuts announced today.
The DMO, which is responsible for managing the government’s debt and cash needs, is raising its debt issuance plans by £72.4bn, to £234.1bn.
Those extra financing needs mean the DMO must issue an extra £62.4bn of gilts – taking the total to be sold this year to £193.9bn.
This is helping to drive up the cost of government borrowing so dramatically this morning –– as investors will demand a higher rate of return for swallowing all this extra debt from the UK.
Bond yields (the rate of return for holding the debt) are now on track for their biggest surge in decades – with two-year gilts yields still the highest since 2008.
desde Nicola SturgeonScotland’s prime minister