LONDON (AP) — Britain’s new government on Friday announced a sweeping plan of tax cuts it said would be funded by borrowing and revenue generated from anticipated growth, in controversial moves to tackle the crisis. cost of living and supporting a faltering economy. .
But Treasury chief Kwasi Kwarteng provided few details on the cost of the program and its impact on the government’s own goals for deficit reduction and borrowing. The government’s two-pronged approach offers short-term relief to homes and businesses struggling with soaring energy costs while betting that lower taxes and less red tape will spur economic growth and boost tax revenue in the years to come.
“We need a new approach for a new era, one focused on growth,” Kwarteng told House of Commons lawmakers.
Friday’s statement was presented as a “fiscal event” rather than a budget because it was not accompanied by an analysis of its cost by the Independent Office for Budget Accountability. Opponents said the government was ducking scrutiny.
The plan was immediately attacked by the opposition Labor Party for favoring business interests over workers and for failing to provide any analysis of the impact on government budget targets.
“It’s a budget without numbers, a menu without prices,” said Rachel Reeves, Labor spokeswoman on Treasury issues. “What does the Chancellor have to hide?”
Many economists have expressed concern that government policies will lead to a sharp increase in borrowing, undermining confidence in the UK economy. The pound fell below $1.12 on Friday for the first time since March 1985.
The program announced on Friday reverses many of the initiatives announced by former Prime Minister Boris Johnson, another Tory. The centre-right party has ruled Britain for the past 12 years.
For example, Kwarteng announced it was reversing a National Insurance tax hike introduced by Johnson’s government in May to boost health and social care spending. Kwarteng said the government would maintain planned funding for the National Health Service – but he did not say how.
He also said the government would cut the basic income tax rate to 19% next year from 20% currently. The maximum rate will be reduced from 45% to 40%. He also reversed a planned six percentage point increase in the corporate tax rate, leaving it at 19%.
“It was the biggest tax-cutting event since 1972, it’s not very small,” said Paul Johnson, director of the Institute for Fiscal Studies, an independent think tank that examines government spending. “It’s been half a century since we’ve seen tax cuts announced on this scale.”
The announcement comes just three weeks after Prime Minister Liz Truss took office. She said the main mission of the Conservative government was to cut taxes to boost economic growth and said this week she was ready to take ‘unpopular decisions’ such as removing the cap on bankers’ bonuses to attract jobs and investments.
The plan goes against the view of many conservatives that governments should not run up huge debts that taxpayers will eventually have to pay.
Reeves criticized the government for expecting taxpayers to foot the bill for its initiatives, rather than raising a windfall tax on energy producers benefiting from soaring oil and natural gas prices.
A cost of living crisis driven by soaring energy costs and slowing economic growth are the biggest challenges facing Truss.
Inflation stands at 9.9%, near the highest level Britain has seen since the 1980s, and is expected to peak at 11% in October.
The government has denied it is betting the economy on a ‘race for growth’, but many economists have said it is taking a huge risk by allowing borrowing to swell when the economy is weak and the inflation is high.
The Bank of England said on Thursday the UK could already be in recession, defined as two consecutive quarters of economic contraction. It expects gross domestic product to fall 0.1% in the third quarter, below its August projection of 0.4% growth. It would be a second quarterly decline after official estimates showed production fell 0.1% in the previous three months.
Over the past two weeks, the government has announced it will cap gas and electricity bills for households and businesses, fearing that the poorest will not be able to afford to heat their homes and businesses will go bankrupt this winter. Kwarteng said this initiative would be financed by loans.
Kwarteng has also announced new ‘investment zones’ across England where the government will offer tax cuts to businesses and help create jobs. He will also give details of how the government aims to fast-track dozens of major new infrastructure projects, including in transport and energy.
Truss – who draws inspiration from Margaret Thatcher’s small-state market economy – insisted that growing the economy and tax cuts for businesses will benefit everyone in the country.
But critics say Truss’ right-wing instincts are the wrong answer to Britain’s economic crisis.
Danica Kirka, Jill Lawless and Sylvia Hui, Associated Press
