Britain’s mini budget cuts taxes and borrows heavily as recession hits

Announcing the biggest tax cuts in 50 years along with boosting spending, Finance Minister Kwasi Quarteng said the government needed a “new approach for a new era, focused on growth.”

Comprehensive tax cuts, including cutting the top rate of income tax to 40% from 45%, cutting fees paid on home purchases, and scrapping a planned increase in business taxes, to £45bn ($50bn) will annihilate. government revenue over the next five years, the UK Treasury said.

Paul Johnson, director of the Institute for Fiscal Studies, An independent think tank called the government’s plans “extraordinary”.

“It’s been half a century since we announced tax cuts of this scale,” he said Tweet,

The pound fell nearly 2% to $1.10 on Friday after Quarteng announced its lowest level since 1985. British government bonds also sold out rapidly. The yield on the benchmark 10-year bond, which trades at the opposite price, is close to 3.66%. It started the year below 1%.

At the same time as cutting taxes, Quarteng said the government would move for the next six months at a cost of £60 billion ($67 billion) to subsidize energy bills for millions of households and businesses that would not be able to borrow. instead of funded. Taxing windfall profits of oil and gas companies,

The measures came a day after the Bank of England warned that the country was already prone to recession. It raised interest rates for the seventh time since December last year to tame 10% inflation, creating a deep life crisis for millions.

‘Unfunded giveaway’

The news of huge additional government borrowings has already made investors worried that the country is spending more than its means. The IFS warned in a Wednesday report that government borrowing was on a “sustainable path”.

George Cervelos, global head of foreign exchange research at Deutsche Bank, said in a research note on Friday that the United Kingdom’s “very large, unreported tax cuts and other fiscal liabilities” were raising concerns about the country’s economy.

“The UK’s immediate challenge is not low growth,” Cervelos said. “The big fiscal spending just announced may give a slight boost to growth in the short term. But the big question is: who will pay for it?” He added.

A senior government minister, Simon Clark, speaking earlier on Friday, denied suggestions that new prime minister Liz Truss was playing a big gamble with the British economy.

“The evidence from the 1980s and 1990s is that a dynamic low-tax economy is one that delivers the best growth rates – this is no gamble, we have loads of history and evidence,” he told the BBC.

According to the Bank of England, heavy energy subsidies will mean inflation should hit 11% next month, not shooting even higher this winter. But investors are concerned that additional government spending will keep inflation at higher levels. And the falling pound only makes matters worse by raising the cost of imports.

The opposition Labor Party criticized the government’s plans to increase borrowing instead of raising taxes on windfall profits for energy companies.

“Oil and gas giants will be toasting the chancellor in the boardroom, while working people are left to pick up bills – borrowing more than they should be if interest rates are raised,” said opposition financer Rachel Reeves. Spokesman.

Quarteng also announced that it would end a limit limiting bankers’ bonuses to double their annual wages introduced after the global financial crisis to prevent excessive risk-taking. He said he wanted to encourage global banks to invest in the United Kingdom.

Labor’s Reeves said the plan would “reward the rich” and represent a return to the “trickle down” [economics] of the past.”

, Mark Thompson, Julia Horowitz and Amy Cassidy contributed reporting.

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