From stamp duty to defense spending: what will Kwarteng’s mini-budget be used for? | Budget

Chancellor Kwasi Kwarteng rises in the Commons on Friday morning to unveil his “emergency budget”. Here’s what we know so far:

What has already been announced?

Growth goals
Kwarteng’s message is that Britain can grow at a faster rate if the private sector is freed from onerous taxes and regulations.

The chancellor claimed this week that it was possible to raise trend growth in national income (GDP) to 2.5%, if his plans are implemented. Over the past 12 years of Conservative administrations, GDP growth has averaged nearly 1.5% and wages for most workers have stagnated.

The Institute for Fiscal Studies (IFS) think tank said there was little evidence that tax cuts and deregulation offered a “miracle cure” to boost growth. He said before the mini-budget that “plans based on the idea that tax cuts will provide a lasting boost to growth are, at best, a gamble.”

Support for the energy bill
An emergency price cap for the next two years of £2,500 on a household’s average annual energy bill was announced by Liz Truss in the first week of her premiership.

It was accompanied by a freeze on business invoices that will last at least six months, the details of which were specified on Wednesday. Truss said it would limit business energy costs to £211 per megawatt hour for electricity and £75 for gas, around half the wholesale market price.

Most analysts predict the government will have to spend over £100bn on the household cap. The business protection bill could cost up to £50billion. Both bailouts could prove costlier if the war in Ukraine escalates and gas prices soar from today’s £424 per therm, although the cost to the Treasury could fall if the Wholesale gas prices continue to fall from a peak above £700 per therm in August back towards their pre-pandemic level of £30 per therm.

National insurance
The Treasury announced on Thursday that the 1.25 percentage point increase in National Insurance contributions for employees and employers, introduced by then-Chancellor Rishi Sunak from April 6 to fund health and care benefits, will be canceled from November 6 at a cost of £13 billion. The increased employee NIC payment threshold set by Sunak, returning £330 to all NI payers, will remain, at a cost of £6 billion.

What can we expect on Friday?

New tax cuts
Kwarteng is expected to confirm that he is in favor of a low and simple corporate tax. The overall corporate tax rate will remain at 19% instead of increasing to 25% and the investment relief planned by Sunak will be abandoned.

Proposals to introduce a planned 1p personal income tax cut from 2024 to next year are reportedly still being discussed and the move could form the centerpiece of a full budget statement later in the year. the year.

The IFS said a four-year freeze on personal thresholds planned by Sunak would generate £1.5bn in the first year and £8bn by 2025-26. But with inflation well above estimates made last March, Kwarteng is reportedly preparing to abandon this measure.

Speculation that there will be a reduction in stamp duty to stimulate real estate transactions could be fleshed out. Estate agents have said that if the policy focuses on cheaper homes it will do little to encourage transactions in the south east of England.

Unlimited banker bonuses
A cap on banker bonuses is set to be lifted as part of broader moves to loosen city regulations. Kwarteng and Truss believe London’s post-Brexit position needs to be strengthened in the eyes of the financial sector and with a bonus cap in place, top executives will refuse to move from Singapore, New York and Zurich.

Truss said the measure would “help Britain become more competitive, help Britain become more attractive, help more investment come into our country”.

Additional expenses
Defense spending will rise from 2% of GDP to 3% of GDP over time, Truss said, adding £20-30bn to government spending.

Extra spending on pensions and benefits, which is linked to inflation, and an estimated £18billion hole in public sector budgets, which is set to increase once higher energy bills are taken into account account, will add to the government’s financial commitments, the IFS said.

Tax rules
Sunak’s flagships were two rules governing how much he could borrow over a three-year period. The first required it to reduce public sector debt as a percentage of GDP each year. The second meant that “in normal times, the state should only borrow to invest in our future growth and prosperity”.

Such is the scale of Kwarteng’s spending, both rules will need to be redrawn.

Additional borrowing over the next two years is expected to exceed £200bn, pushing the UK’s debt-to-GDP ratio above 100%, most likely permanently, unless the government believes in the growth-generating properties of tax cuts – what the IFS described as a gamble – are paying off.

Lack of official control
Kwarteng blocked the Independent Office for Budget Accountability (OBR) from passing judgment on the impact of his mini-budget. The fiscal watchdog would typically provide a forecast of the likely increase in borrowing and tax revenue. There would also be a broader view of the economic impact and growth of the economy over the next five years.

The Chancellor is known to have ranted about OBR assessments in the past, deeming them too pessimistic about the power of tax cuts to improve long-term sustainable growth rates.

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