At last... new Chancellor to serve up tax cut bonanza in mini Budget
...But middle class Scots families could miss out thanks to the SNP
CHANCELLOR Kwasi Kwarteng is planning to announce a tax-cutting bonanza in this week’s emergency mini Budget – including the possibility of fast-tracking a planned 1p reduction in income tax.
Whitehall sources say Mr Kwarteng is drawing up a ‘really punchy’ £30 billion package of measures to reflect Prime Minister Liz Truss’s desire to make a ‘dash for growth’ in time for the next general election, which is expected to be held by autumn 2024.
In addition to Ms Truss’s promises to reverse Rishi Sunak’s recent increase in National Insurance and freeze corporation tax, the Chancellor is considering bringing forward his predecessor’s plan for a 1p cut in the basic rate of income tax from 20p to 19p in the pound.
Mr Sunak announced in March his intention to introduce the 1p reduction in two years’ time.
However, any changes to income tax announced by the new Chancellor will not automatically apply in Scotland due to the country’s devolved tax rules.
The Scottish Government has the power to set the rate and bands of taxation. And while a 19 per cent rate for earnings between £12,571 and £14,733 sees the least well off pay less here at the moment, under the SNP’s regime anyone in Scotland earning more than £27,850 pays more tax than they would elsewhere in the UK.
Cuts by the Chancellor would spark demands for Nicola Sturgeon to follow suit – or else risk further penalising the hard-working middle class in Scotland.
Whitehall sources said Mr Kwarteng was also planning a ‘knockout surprise measure’ – described as a ‘proper rabbit out of the hat moment’ – which has been the subject of extensive, secretive discussions between Ms Truss and her Chancellor.
The emergency statement, which Mr Kwarteng will deliver to the Commons on Friday, will form part of one of the most significant fiscal interventions by a Westminster Government in the past century.
The £30 billion tax boost comes in addition to the cap on energy prices, announced in the first week of the Truss administration, which will limit typical annual household bills to £2,500 for two years, at a cost of around £150 billion.
More than 20 measures are expected to be announced in the mini Budget, including the controversial plan to abolish the cap on bankers’ bonuses and taking an axe to ‘nanny state’ levies such as the sugar tax.
Other possible moves could see a lift in the level at which the basic rate of income tax is paid, from £12,571, and increasing the amount when the higher band kicks in, from £50,271, as well as more generous tax allowances for married couples and the self-employed.
Allies of Mr Kwarteng are defiant about ending the limit on bonuses to twice a banker’s salary – despite the political ammunition it hands to Labour – on the grounds increasing growth across the economy is more of a priority than clamping down on individual pay packages. As one said to this newspaper: ‘If we make the pie bigger, then everyone’s slice of the pie will be bigger.’
Ms Truss made clear during the Tory leadership campaign she wanted to exploit the opportunities of Brexit to turbocharge revenues in the City.
Despite the multi-billion pound splurge by the Government, Mr Kwarteng’s allies are confident the Treasury will be able to stay within current fiscal rules, which require that debt should fall as a proportion of national income in 2024-25.
Their hopes appear to be pinned on the pessimistic projections about future energy prices proving to be overstated, and the UK economy being more resilient than expected – helped by the knock-on effects of the forthcoming coronation of King Charles III.
Mr Kwarteng could also simply ‘move the goalposts’ in the November Budget by extending the debt target into the next Parliament.
The mini Budget comes against the backdrop of the latest figures showing GDP growth stalled in July, while inflation is nudging towards double figures.
The most eagerly anticipated measure will see Mr Kwarteng set out more details about the energy cap, which will save a typical home around £1,000 from October 1, when the current consumer price cap had been set to soar.
‘Proper rabbit out of the hat moment’