By Anviksha Patel
UK Chancellor of the Exchequer Kwasi Kwarteng will unveil the government’s budget this Friday, and amid rising inflation, the escalating war in Ukraine and the energy crisis, here’s what to expect from the announcement:
Get a tax break and a tax break… everyone gets a tax break.
Prime Minister Liz Truss is set for Oprah Winfrey over tax-cutting measures to boost the economy, which she says could make her an unpopular leader.
The tax changes include a cancellation of the planned rise in corporation tax, outlined by former finance minister Rishi Sunak from 19% to 25%, at an estimated cost to government finances of £17bn ($19.2 billion), according to the Tax. Foundation
The mini-budget is expected to derail the 1.25 percentage point rise in National Insurance, which was brought in to support the social services of the National Health Service. The Tax Foundation says the cut could reduce government revenue by £13 billion.
It also emerged last week that Kwarteng is looking to get rid of the cap on bankers’ bonuses as part of a post-Brexit overhaul to attract foreign talent to the City of London.
In a bid to ease the cost of living crisis, the Budget is expected to announce the planned cut in income tax of 1 pence per pound to come into force in 2023, instead of 2024 as Sunak proposed.
The Times reports that Truss could even reduce stamp duty on the property.
The government has already unveiled a plan to cap UK household bills at £2,500 a year for two years. On Wednesday, it announced a cap on wholesale gas and electricity prices for businesses below the market price, starting next month. The price will be confirmed on September 30.
There is no word on how much both schemes will cost, but estimates have put the price tag on family support in excess of £100bn, up from £150bn estimated in May by the Office for Budget Responsibility. Analysts at Investec say the business plan will cost between GBP 22 billion and GBP 48 billion.
Investec economist Sandra Horsfield said the final cost of the package would depend on “the evolution of actual gas prices as well as the amount of gas consumed”.
What is left out?
The independent forecaster Office for Budget Responsibility (OBR) usually provides the Treasury with a forecast of the UK’s economic outlook, which is usually published alongside the mini-budget.
But the BBC reported on Wednesday that the Treasury has refused to release a budget forecast.
Impact on markets
Market commentators such as Morgan Stanley analyst Allan Monks said the current tax rules would leave “no room for downside surprises”.
“This would make it difficult for the OBR to express confidence in the government’s plans,” he added.
While Jane Foley, head of currency strategy at Rabobank, recalls that the gilts market sold off heavily when Truss was announced as prime minister.
“This reflects the market’s judgment on his fiscal plans. Investors are skeptical about the UK’s ability to meet a growth target (which is said to be in the 2.5% area) and upset by the prospect of even greater debt,” he added. .
– Anviksha Patel
(FI) Dow Jones Newswires
09-22-22 0623 ET
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