Great Britain’s Finance Minister Kwasi Kwarteng has announced an extensive package of aid to cushion high energy prices and tax cuts. The aim is to boost growth in the British economy, he said in Parliament this Friday. According to economists, the measures could cost up to 200 billion pounds – the equivalent of almost 230 billion euros. It is unclear whether the debt will continue to rise as a result or whether the measures will pay for themselves, as the government hopes. In the forex market, the pound slipped to its lowest level against the dollar in 37 years.
“Growth is not as high as it should be,” said Kwarteng. There has to be a stronger focus on pushing it. “Our medium-term goal is to achieve a growth rate of 2.5 percent as a trend.” That would be tantamount to doubling. Tax incentives should help. The new Conservative Prime Minister Liz Truss had hit her internal party rival and former Finance Minister Rishi Sunak with, among other things, a promise to resist tax increases. Sunak had planned this because debt has shot up significantly in the corona pandemic.
£60 billion against high energy prices
Kwarteng said the tax cuts are intended to break the “vicious circle of stagnation.” From April 2023, only a higher income tax rate of 40 percent will apply, and the even higher rate of 45 percent for incomes above £150,000 will be dropped. The base rate will be reduced to 19 percent – a year earlier than originally expected. “That means a tax cut for over 31 million citizens in just a few months.” Britain will have one of the most competitive and growth-friendly tax systems in the world. According to a government official, the tax measures are worth £45 billion. According to the Institute for Fiscal Studies, these are the largest tax cuts since 1972, i.e. half a century.
In order to relieve households and companies from the sudden rise in energy prices, around £60 billion is planned for the next six months, according to Kwarteng. The exact amount is subject to uncertainties because energy prices fluctuate greatly. The aim is to conclude new energy supply contracts, which then lead to lower burdens. Since the Russian attack on Ukraine, energy and electricity prices have risen massively, making a recession likely in Germany as well. According to experts, Brexit is slowing down the economy on the island. The Bank of England’s latest forecasts also suggest that the UK is already in recession due to the energy crisis and high inflation.
Lower the debt ratio, no longer cap banker bonuses
Kwarteng also announced that a plan would be presented shortly on how the debt ratio could be reduced in the medium term. Logistics companies should also be forced to maintain a minimum supply even during strikes. For overseas tourists, VAT should be eliminated on purchases to give the retail industry a boost.
The plans to remove bonus caps for bankers are controversial. “We need global banks that create jobs here, invest here and pay taxes here in London, not in Paris, not in Frankfurt and not in New York,” says Kwarteng. The previous limitations only caused basic incomes to rise and activities to be relocated outside of Europe.