UK chancellor Kwasi Kwarteng will on Friday attempt to deliver shock treatment to Britain’s stagnating economy, with a 30-point growth package to turn “the vicious cycle of stagnation into a virtuous circle of growth”.
Kwarteng’s mini-Budget will feature tax reforms to help struggling self-employed business owners, alongside scrapping a planned increase in corporation tax that will help profitable larger companies.
The chancellor will sharply increase borrowing to pay for a package of tax cuts and an emergency plan to hold down household and company energy bills, while announcing a series of contentious regulatory reforms.
A cap on bankers’ bonuses is expected to be axed and environmental legislation will be overhauled. “We will be bold and unashamed in pursuing growth — even when that means taking difficult decisions,” Kwarteng will say.
He will also outline regulatory reforms in the City of London intended to unlock billions of pounds of investment by pension funds in infrastructure, part of prime minister Liz Truss’s drive to make the UK capital the world’s leading financial centre.
Labour believes Kwarteng is sowing the seeds for the Conservative party’s defeat by announcing tax cuts that disproportionately help the rich and profitable big businesses, while allowing bankers’ bonuses to rise.
Meanwhile the think-tank the Institute for Fiscal Studies and the investment bank Citi have warned that Kwarteng is due to put the public finances on an “unsustainable path”.
The chancellor will insist he will maintain “responsible public finances”. However the government’s fiscal rule, which states that debt should be on course to fall as a share of gross domestic product within three years, is set to be suspended.
The chancellor’s “growth plan”, to be outlined to MPs on Friday, runs to about 30 pages and contains Treasury costings, but there will be no new forecasts from the UK fiscal watchdog.
Kwarteng’s plan to cut national insurance and scrap the planned corporation tax rise will cost £30bn a year. He is also planning to cut stamp duty on house purchases.
Labour believes the chancellor may go even further and cut the basic rate of income tax from 20p in the pound to 19p.
The chancellor will only set out the costs over six months of his intervention to hold down household and business energy bills, although much of the scheme will run for longer. The total cost has been estimated at £150bn.
The mini-Budget is expected to draw criticism from several quarters. The green lobby is likely to react angrily to Kwarteng’s plan to reduce the burden of environmental assessments and to rewrite habitats and species regulations to speed up the delivery of 100 major infrastructure projects.
But some 38 local council and mayoral areas are in discussions with the Treasury about setting up new investment zones in their areas, which would benefit from more liberal planning rules and time-limited tax cuts.
The government is also pursuing changes to how self-employed business owners are taxed, to free small companies from unnecessary costs.
Truss is committed to reviewing the tax levied on one-person businesses, freelancers and contractors under so-called IR35 rules, which have been attacked for adding the sorts of costs that permanent employees face without the associated benefits.
IR35 rules have been overhauled in recent years, shifting responsibility from contractors to employers over whether they should be considered to be employees for tax purposes.
Employers fearing large tax bills have as a result chosen not to use contractors, which has had a chilling effect on the freelance economy.
Small businesses have already claimed victory after Kwarteng on Thursday confirmed plans to reverse a rise in national insurance introduced by his predecessor Rishi Sunak from November 6. Business lobby groups had said the rise was unfairly penalising employers across the UK.
The move will reduce tax for 920,000 businesses by nearly £10,000 on average next year. Craig Beaumont, chief of external affairs at the Federation of Small Businesses, said this was a “good moment” for businesses in the UK.
“This marks the end of the ‘fuck business’ era of the previous administration — and finally removes the threat of having the highest small-business tax burden since Clement Attlee hanging over us,” he added.