The UK government announced on Friday that it would borrow heavily to fund a raft of tax cuts in a bid to boost the British economy, which is facing the highest rate of inflation in nearly four decades.
As part of the package, the British government will cut payroll taxes, freeze corporate tax, drop a cap on bank executive bonuses and spend billions of pounds subsidizing accounts over the next two years, Finance Minister Kwasi Kwarteng said.
“This stagnation has led to predictions that the tax burden will reach its highest level since the late 1940s?” Quarteng said. “We are determined to break this cycle. We need a new approach for a new era, focusing on growth,” he added.
A package of subsidies and tax cuts – funded by public debt – could cost more than £150bn over the next two years, analysts say, in a bold gamble by Britain’s newly-minted prime minister Liz Truss. The government has said it will borrow an additional £72.4 billion to fund its plans.
Kwarteng said the top rate of income tax for taxpayers earning more than £150,000 a year would be reduced from 45% to 40%. The minimum rate will be reduced to 19% from April 2023, a year ahead of schedule.
The government announced a tax cut for first-time home buyers and scrapped a planned dividend tax hike for 2023.
Investors are concerned about the level of spending. Energy subsidies alone are expected to cost around £60 billion over the next six months. The UK Treasury estimates the tax cuts will cost £26.7bn next year and £31.4bn in 2024.
Liz Truss’s government announcement had a strong impact on the pound, which renewed a 37-year low against the dollar, and helped boost interest rates on gilts, as British government bonds are known.
*With information from Dow Jones Newswires
