Liz Truss declares 'action starts now' with growth-focused mini-budget

Pound drops to $1.11 before UK’s tax-slashing 'fiscal event' on Friday

Prime Minister Liz Truss and Chancellor Kwasi Kwarteng discuss their growth plan before Friday's fiscal statement to the House of Commons. Photo: Rory Arnold / No 10 Downing Street
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UK Chancellor Kwasi Kwarteng will unveil a mini-budget on Friday, which aims to break the “cycle of stagnation” in the British economy.

Tens of billions of pounds of increased spending and tax cuts will be announced at the “fiscal event”, as it is officially known.

Prime Minister Liz Truss said the plan would create more jobs, release extra finances for public services and lead to higher wages.

Foreign exchange markets took fright at the level of new debt likely to be incurred — as much as £50 billion ($55.9bn) — pushing sterling to a 35-year low of $1.11.

“The Chancellor @KwasiKwarteng and I know what a great country this is,” she wrote on Twitter.

“Our Growth Plan will unleash our potential and deliver better jobs, more funding for public services and higher wages for the British people.

“The action starts now.”

Mr Kwarteng is expected to tell the House of Commons: “Growth is not as high as it needs to be, which has made it harder to pay for public services, requiring taxes to rise.

“This cycle of stagnation has led to the tax burden being forecast to reach the highest levels since the late 1940s.

“We are determined to break that cycle. We need a new approach for a new era focused on growth.”

The statement is expected to include details of how the government will fund the energy price cap for households and businesses, and put into practice many of Ms Truss's tax-cutting promises.

The government is calling it a “growth plan”, which features about 30 measures. It comes at a time when the UK faces a cost-of-living crisis, recession, soaring inflation and climbing interest rates.

Mr Kwarteng will say that the plan will deliver enough revenue to fund public services and allow Britain to compete with other leading economies.

“That is how we will turn the vicious cycle of stagnation into a virtuous cycle of growth,” Mr Kwarteng is expected to say. He will say Ms Truss's administration will be “bold and unashamed in pursuing growth — even where that means taking difficult decisions”.

The chancellor has already confirmed that the national insurance rise introduced by Boris Johnson's government to pay for social care and tackling the National Health Service backlog will be reversed.

He is also set to scrap the planned increase in corporation tax from 19 per cent to 25 per cent and the cap on bankers' bonuses as part of wider City deregulation.

It has also been reported that he will cut stamp duty in a further attempt to drive growth.

Proposals to fast-track a scheduled 1p cut to income tax and to slash VAT from 20 per cent to 15 per cent across the board are reportedly being considered.

The government is in talks with local authorities in the West Midlands, Tees Valley, Somerset and other regions to establish new investment zones — areas with lower taxation and planning rules, the chancellor is to announce.

“The time it takes to get consent for nationally significant projects is getting slower, not quicker, while our international competitors forge ahead. We have to end this,” Mr Kwarteng will say.

He also wants new measures to speed up about 100 major infrastructure projects, including new roads, railways and energy projects, by watering down environmental assessments and other regulations.

In a shake-up of the welfare system, Mr Kwarteng is reportedly set to announce that 120,000 Universal Credit claimants will have to take active steps to find work or lose benefits.

A price cap for the next two years of £2,500 on the average household's annual energy bill was announced by Ms Truss shortly after she took office, with a six-month freeze on bills for businesses and other non-domestic users unveiled this week.

Estimates of the cost of the energy package are as high as £150 billion.

Some economists have questioned the sharp rise in government borrowing to fund the plans.

The Institute for Fiscal Studies said the strategy to drive growth was “a gamble at best” and that ministers risked putting the public finances on an “unsustainable path”.

Labour also gave a warning of increased risk and said the plans followed 12 years of “low growth and plummeting living standards”.

Pat McFadden, shadow chief secretary to the Treasury, said: “The Conservatives don't have a new plan for economic growth. They have simply moved from levelling up to trickle down and that has not worked in the past.

“Their choice to fund all of this through borrowing and not attempt to fund even a proportion of it through a windfall tax on the energy companies making the most from the current crisis increases risk and leaves British taxpayers paying more for longer.

“They are doing all of this at a time when inflation is high and interest and mortgage rates are already on the rise.”

The Bank of England on Thursday raised interest rates to 2.25% — their highest in more than 13 years — and indicated it believes the economy is already in recession.

Governor Andrew Bailey told Mr Kwarteng in a letter that interest rates might have to be raised even further to curb the extra demand caused by his new tax cuts.

He wrote that the government's energy price guarantee could add to “inflationary pressures in the medium term”.

In response, Mr Kwarteng challenged the central bank to “continue to take the forceful action necessary” to rein in near-double digit inflation.

The chancellor, who has previously criticised the bank's record on containing inflation, also noted that “not all of the UK's above-target inflation can be attributed to global events and that inflationary pressures are becoming more domestically driven”.

Unlike a full budget, which would typically be held in November, Mr Kwarteng will put forward only a handful of legislative proposals.

He has come under fire for preventing the independent Office for Budget Responsibility from making the economic forecasts usually published alongside a budget, leading to accusations that of avoiding scrutiny.

The lack of OBR data means there will be no independent analysis of whether the announcements breach the government's existing budget rules or their effect on growth.

Ms Truss this week said she was willing to be an unpopular prime minister to bring in measures she believes will grow the economy.

She admitted her tax cuts would disproportionately benefit the rich but rejected claims of unfairness.

Updated: September 23, 2022, 8:11 AM
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