Cambridge MP astonished at ‘tax cuts for super rich’ in Chancellor’s mini-budget
Cambridge’s MP said people struggling to meet their rising bills will be “astonished” by the tax cuts announced by the Chancellor “for the super-rich”.
In his statement on the economy, Kwasi Kwarteng abolished the top rate of income tax for the highest earners, meaning from April, the 629,000 earners getting more than £150,000 a year will no long pay 45 per cent and instead pay the 40 per cent applicable to those earning more than £50,271.
He argued the top rate of income tax is higher than the headline top rate in G7 allies like the US and Italy.
The Chancellor also brought forward the planned cut to the basic rate of income tax to 19p in the pound a year early to April.
He also scrapped the cap on bankers’ bonuses. Mr Kwarteng argued the cap to limit them to twice salaries “never capped total remuneration”,
And this week he had already announced that, from November 6, he was cancelling the 1.25 percentage point increase imposed by Rishi Sunak when he was Chancellor to pay for social care and dealing with the NHS backlog.
The measures, also including the cancellation of the planned rise in corporation tax and the introduction of VAT-free shopping for overseas visitors, are designed to “turn the vicious cycle of stagnation into a virtuous cycle of growth”, Mr Kwarteng said.
He also announced cuts to stamp duty in England and Northern Ireland, doubling the exemption level immediately from £125,000 to £250,000 and increasing it for first-time buyers from £300,000 to £425,000.
The cuts are expected to cost nearly £45billion a year by 2026. The Treasury said the total package would be funded by increasing borrowing by £72.4 billion.
But Cambridge’s Labour MP Daniel Zeichner responded: “People in Cambridge faced with rapidly rising bills, prices, rents and mortgages will be astonished to hear that the priority for the new Chancellor is to cut taxes for the super-rich and lift the cap on banker’s bonuses.
“Energy bills will still double. They will only be stopped from rising more by massive government borrowing, which will have to be paid back by taxpayers in future. Those taxpayers are Cambridge businesses and workers. Meanwhile, the Prime Minister and Chancellor leave the huge windfall profits of energy giants untouched.
“Liz Truss has been part of every government decision made over the last decade, she voted for everything that she now says was wrong, and today her own chancellor admitted the scale of the problem the Conservatives have created. As a government, they lack any credibility, and risk plunging the country into further crisis.”
But Anthony Browne, the Conservative MP for South Cambridgeshire - and former head of the British Bankers’ Association - said: “I have been calling for a relentless focus on growth for some time now, as far back as my first ever Budget speech in 2020 where I urged the then-Chancellor to go for growth.
“We need to fire up the engines of the national economy. That means pursuing supply-side reforms. It means supporting free enterprise, and - dare I say it - taking advantage of some of the opportunities we have from leaving the EU to pursuing trade and innovation.
“Despite the crisis, we still have dynamic growth sectors such as fintech and biotech - as we have in South Cambridgeshire, where we are in many ways world-leading. We must promote them.”
Speaking in the House of Commons, Mr Browne said he strongly welcomed the tax cuts, and the “positioning as the Conservative party as the low tax party” but urged the Chancellor to go further and make “further cuts” or scrap altogether what he called “the most economically damaging of all taxes” - stamp duty.
The Chancellor replied: “I’ve only been in post two and a half weeks, but I’d be very happy to discuss with him how we can simplify our tax system.”
But Pippa Heylings, the Liberal Democrat Parliamentary candidate for South Cambridgeshire, was aghast at the measures.
“The Conservatives have shown just how out of touch they are with people in South Cambridgeshire,” she argued.
“This is not a plan, but a recipe for disaster that will leave local people suffering from soaring prices while banks and oil and gas companies rake in huge profits.
“The government is putting handouts for bankers first and support for families and pensioners last.
“As people worry about soaring bills and our high streets are pushed to the brink, the new Chancellor has shown he must be living on another planet.
“With the worst inflation in decades, rising interest rates, and an economy heading into a recession, the Conservative claim to be the party of business now seems like a sick joke. This economic vandalism will not be forgiven by voters in South Cambridgeshire.
“It’s no wonder so many lifelong Conservative voters are now backing the Liberal Democrats in places like South Cambridgeshire. They just want a fair deal from this government, but time and time again they are being ignored and taken for granted.”
Business leaders gave the measures a warmer welcome as the Chancellor also announced plans for new low-tax “investment zones” that will allow planning rules to be relaxed and will reduce business taxes to encourage investment.
Ian Sandison, CEO of Cambridge BID, who had called for urgent action, said: “Businesses will cautiously welcome the wide range of measures announced today.
“The reversal of the 1.25 per cent National Insurance rise, the scrapping of the planned six percentage point increase in corporation tax, the introduction of a new tax-free shopping scheme for tourists and plans to unblock the glacial planning system for infrastructure projects are all very positive.
“This coupled with the earlier announcement of a six-month energy cap for businesses should give some comfort to businesses facing inflationary pressures from all sides and should allow them to trade through what will hopefully be a strong Christmas period and into 2023.
“The tax-free shopping scheme is a particular boost to Cambridge since we are very dependent on the visitor economy and this should encourage more high spending US, Middle Eastern and, when able to, Chinese visitors to visit here.
“A reduction in the rate of VAT for businesses to 12.5 per cent would have been good as would more plans to allow more seasonal workers into the country or boost the numbers of workers in the economy since we currently have more vacancies than people unemployed.
“We await more information on the low tax zones it would be a great boost to our regional economy if Cambridge was in one.”
Tony Danker, CBI director-general, said: “This is a turning point for our economy. Like Covid, the energy crisis has meant government has had to spend massively to protect people and businesses. That means we have no choice but to go for growth to afford it.
“Today is day one of a new UK growth approach. We must now use this opportunity to make it count and bring growth to every corner of the UK. Fifteen years of anaemic growth cannot be repeated.
“Taking action to get Britain’s economy moving again by beginning construction on transport and green infrastructure projects shows immediate delivery. Planning reform is long overdue. A simpler, smarter approach to tax can pay dividends, and firms will be keen to make the most of the investment incentives on offer.
“It’s not perfect – it’s just the beginning – but there’s plenty business can work with. The Chancellor signalled more proposals to come this Autumn and these will be vital to sustain momentum on growth.”
However, the pound and London stock market plunged in what one analyst called “the worst day I have ever seen” after the Chancellor revealed his mini-budget.
Sterling repeatedly fell to new 37-year lows against the dollar during the day, slowly edging towards its all-time trough.
At its lowest point on Friday afternoon £1 could buy just 1.0896 dollars – the worst exchange rate for Britons since 1985.
Meanwhile, the Eastern Powerhouse, a business-led lobbying group, said it expects a low tax investment zone to be created at the Norfolk end of the A11 tech corridor as a result of the Chancellor’s plans.
The key points from the Chancellor’s statement on the economy
- Mr Kwarteng began by saying “help is coming” for people with their energy bills, and that the energy price guarantee will limit bills for the average household to £2,500.
- The Chancellor outlined government support for businesses, telling MPs the energy bill relief scheme will reduce wholesale energy costs for all UK businesses, charities and the public sector.
- He said that the consensus among “independent forecasters” was that the government’s energy plan “will reduce peak inflation by around five percentage points”.
- Mr Kwarteng said the Bank of England is taking further steps to control inflation, and the government considers the Bank’s independence to be “sacrosanct”.
- The government wants a new approach to growth, Mr Kwarteng said, with the aim, over the medium term, to reach a trend rate of growth of 2.5 per cent.
- Mr Kwarteng said the government will set out its fiscal approach more fully in future, and the Office for Budget Responsibility will publish an economic and fiscal forecast before the end of the year, with a second to follow in the new year.
- He said the energy package will cost £60 billion for the six months from October.
- Mr Kwarteng said there will be announcements in the coming weeks that will cover “the planning system, business regulations, childcare, immigration, agricultural productivity and digital infrastructure”.
- The government will legislate to put new conditions on unions wanting to strike, Mr Kwarteng said, so that unions have to put pay offers to a vote.
- Mr Kwarteng said he would “accelerate reforms” to the pension charge cap, so it will no longer apply to “well-designed performance fees”.
- The Chancellor announced the government’s plans for new low-tax “investment zones”, that will allow planning rules to be relaxed and will reduce business taxes to encourage investment.
- Mr Kwarteng confirmed plans to get rid of the cap on bankers’ bonuses and, to reaffirm the UK’s status as the world’s financial services centre, the Chancellor said he will “set out an ambitious package of regulatory reforms later in the autumn”.
- Mr Kwarteng confirmed that the planned rise in corporation tax would be cancelled, so that the UK “will have the lowest rate of corporation tax in the G20”.
- The planned alcohol duty rises will be cancelled, Mr Kwarteng said, and the government will introduce VAT-free shopping for tourists.
- The Chancellor outlined his desire to make the tax system “simpler” and said he would “wind down” the Office of Tax Simplification.
- The Chancellor confirmed to MPs that the health and social care levy introduced by Boris Johnson’s government would be cancelled.
- The Chancellor said the health and social care levy, and other planned rises in national insurance contributions, would be cancelled from “the earliest possible moment”, November 6.
- Mr Kwarteng confirmed a cut in stamp duty from Friday, as he told the Commons “homeownership is the most common route for people to own an asset, giving them a stake in the success of our economy and society”.
- He said the top rate of income tax, the 45 per cent rate for earnings over £150,000, is being abolished altogether.
- Mr Kwarteng said he will cut the basic rate of income tax to 19p in April 2023, one year early.