Britain’s wealthy will get lion’s share of £45billion tax cuts announced by Kwasi Kwarteng

Chancellor Kwasi Kwarteng has been accused of ‘bet the house’ on the fallout economy after a ‘Robin Hood inside out’ budget that massively increased government borrowing to deliver the biggest tax cuts in one generation to the wealthiest in society.

After Mr Kwarteng scrapped the top income tax rate of 45p and reversed the 1.25% National Insurance hike, independent economists said almost half of his cuts to £45billion would go to the top 5 per cent.

His package – requiring £72.4bn of additional borrowing at a time of rising interest rates – spooked markets, with the pound falling to a 37-year low against the dollar and the FTSE100 falling crashing below 7,000 for the first time since June.

And senior Tories have expressed concern, with former Treasury minister John Glen warning the Chancellor of the ‘irreconcilable realities’ of easing fiscal policy at a time when the Bank of England is tightening its monetary stance in a bid to contain inflation.

The package was announced a day after the Bank warned the UK may already be in recession and raised interest rates to 2.25%.

Presenting what he called a “growth plan” after just 17 days at the Treasury, Mr Kwarteng told the House of Commons that the tax cuts and deregulation promised during Prime Minister Liz Truss’ campaign for Conservative leadership was needed to “reverse the vicious circle of stagnation into a virtuous circle of growth”.

He scrapped stamp duty on homes worth up to £250,000, scrapped a planned rise in corporation tax from 19p to 25p and brought forward a cut from 20p to 19p to April 2023 % of the main income tax rate.

Supporters hailed the budget as the biggest package of tax cuts in 50 years.

But the Institute for Fiscal Studies said that after taking into account the tax changes introduced by Mr Kwarteng’s predecessor, Rishi Sunak, only those earning £155,000 or more would win overall during this parliament.

Treasury figures have shown that abolishing the 45p income tax rate will benefit the 629,000 people in the UK earning over £150,000 at an average of £10,000 a year, earnings increasing as they earn.

Torsten Bell, chief executive of the Resolution Foundation think tank, said those earning £1million a year will get a £55,000 tax cut next year thanks to the wider package.

But there will be no gain for those earning less than £12,750, and those earning £20,000 will see an increase of just £157 in the base rate reduction. Only 12% of tax gains go to the poorest half of households.

Kwasi Kwarteng leaves No 11 to deliver his mini budget (Aaron Chown/PA)

(PA wire)

The Institute for Fiscal Studies said the changes would leave the ‘vast majority of taxpayers paying more tax’ by 2025/26, when Mr Sunak’s earlier freeze to tax thresholds is taken into account, only those who earn more than £155,000 win.

In a scathing analysis, IFS Director Paul Johnson said the plan “appears to be to borrow large sums at increasingly expensive rates, put public debt on an unsustainable upward trajectory and hope that we will get better growth”.

“Mr Kwarteng has shown himself willing to play with fiscal sustainability in order to push through these huge tax cuts,” Mr Johnson said. “Mr Kwarteng is not just betting on a new strategy, he is betting the house.”

The IFS predicts government borrowing could remain as high as £110bn a year even after the massive energy support package expires – valued by Mr Kwarteng at £60bn for the six first months – in two years.

Future tax hikes or spending cuts will be needed to pay for the rising debt, the think tank said.

The city panicked in response to the surprise package, in what one analyst called ‘the worst day I’ve ever seen’

At its lowest point on Friday afternoon, £1 could only buy $1.0896 – the worst exchange rate for Brits since 1985 – and the pound also fell against the weaker euro, while the FTSE 100 at one point hit a low of 6,981.5, down 2.5%. to day.

“By throwing Rishi Sunak’s tax hike plans on a bonfire, the government is taking a big bet that growth will be ignited, to help the economy grow,” said Susannah Streeter, senior investment analyst and markets at Hargreaves Lansdown.

“But confidence that these unfunded tax cuts are a coherent policy for today’s inflation-ridden times goes up in smoke.”

Labour’s shadow Chancellor Rachel Reeves compared the Prime Minister and Mr Kwarteng to ‘two desperate gamblers in a casino chasing a losing race’.

She said the government had ‘decided to replace leveling with trickling’ – accusing Ms Truss of subscribing to ‘an ideology that says if we just reward those who are already rich, society as a whole will benefit’.

Business groups gave a cautious welcome to the Chancellor’s mini-budget. But TUC general secretary Frances O’Grady said the government was ‘holding down wages and lining the pockets of big business and city bankers’, adding: ‘This budget is a Robin Hood in reverse “.

Royal College of Nursing general secretary Pat Cullen said he had given ‘billions to bankers and nothing to nurses’ and urged nurses to vote for the strike in an upcoming ballot.

Money-saving expert Martin Lewis described the government’s “huge new borrowing” and huge tax cuts as “mind-boggling”. He said, “It’s all about growing the economy. I really hope it works. I really worry about what will happen if it doesn’t.

Former US Treasury Secretary Larry Summers, who served under Bill Clinton and Barack Obama, said the UK was “behaving a bit like an emerging market turning into a submerged market”.

Warning that Truss’ ‘naive and pious’ stance could push the pound below parity with the US dollar, he said the UK was pursuing ‘the worst macroeconomic policy of any major country in a long time’.

SNP leader and Scottish First Minister Nicola Sturgeon has said the super-rich will ‘laugh right down to the current bank’ – accusing the Tories of ‘moral bankruptcy’.

By billing his package as a ‘tax event’ rather than a budget, the Chancellor was able to avoid subjecting his figures to the rigorous analysis normally provided by the Independent Office for Budget Accountability.

But unexpectedly, the Treasury said there would be no full budget in November for the OBR to assess.

Treasury Select Committee Chairman and Tory MP Mel Stride said the lack of a forecast from the OBR left a “vast void” at the heart of the plan.

Mr Kwarteng also confirmed he was scrapping the cap on bankers’ bonuses, announcing VAT-free shopping for overseas visitors and setting new requirements for 120,000 part-timers at Universal to seek more and better-paying work or risk seeing their benefits reduced.

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