Kwasi Kwarteng will announce the details of his mini-budget on Friday as Britain is already in recession. In just his third week in orbit, the chancellor is expected to announce sweeping tax cuts and further details about the government’s energy price freeze, in an emergency package worth more than £150 billion.
It comes after the Bank of England reported that the UK economy slipped into recession amid the cost of living earlier this year. Here are the top five charts that will support the Chancellor’s statement.
Inflation has risen to its highest level since the early 1980s in recent months, as the Russian war in Ukraine drives up energy prices, leading to higher food and fuel costs for heavily burdened British households.
The consumer price index fell slightly to 9.9% in August, after reaching double digits in July for the first time since 1982.
However, it is widely expected that Liz Truss’ plan to limit the average household energy bill to £2,500 over the next two years will limit further increases in the nominal rate. Some economists had expected the measure of the cost of living to reach 18% next year, or even more than 22% if energy prices remained high.
The Bank of England now expects inflation to peak close to 11%, although it has warned that the Prime Minister’s energy package could lead to continued higher inflation rates by supporting consumer demand for goods and services.
Kwarteng labeled his mini-budget as “the growth plan” before announcing broad tax cuts designed to help meet an annual GDP growth target of 2.5%.
The Chancellor is widely expected to scrap a planned corporate tax hike from 19% to 25% in April, initiated by Rishi Sunak, on the grounds that lower tax rates on corporate profits could encourage companies to invest in Britain .
Stopping the tax hike would follow years of tax cuts, with Britain bottoming out in the G7 rankings for the top corporate tax rate.
The move hadn’t been a priority for business leaders, who were pushing for relief from their capital investment tax bills. Evidence also shows that corporate tax cuts since 2007 have failed to boost business investment, according to the think tank Institute for Public Policy Research.
Kwarteng confirmed on Thursday that the government’s increase in national insurance schemes introduced earlier this year would be reversed from November 6, while the new health and care levy – a separate tax that would replace the increase in national insurance from April – would be reduced. be deleted.
The tax increase was intended to raise £13bn a year to fund health and social care. However, the Chancellor confirmed that the funding would be maintained, although he did not specify how it would be funded.
Truss’s pledge in the Tory leadership race, a year after she and every member of her cabinet voted in favor of the tax hike under Boris Johnson, has been criticized by charities for providing the most cost of living to those who need it least.
The Resolution Foundation warned that the poorest tenth of households would receive just £11.50 this year, while the richest would receive an average of 60 times that amount.
Wholesale gas price:
Wholesale gas prices have fallen in recent weeks as Russia loses ground in Ukraine and European countries make progress in filling gas storage facilities for the winter.
With Truss’ energy price guarantees for households and businesses limiting the increase for consumers, the ultimate cost to government in the coming months will depend largely on movements in wholesale markets. However, prices are still almost double what they were a year ago.
The government tax cuts and the energy guarantee are expected to lead to a sharp increase in government borrowing. Truss declined to consider a new windfall tax to offset some of the cost to the treasury.
Despite the magnitude of the Chancellor’s tax and spending plans, the Office for Budget Responsibility, the Treasury’s economic forecaster, has not been asked to make official estimates for the economy and public finances.
The think tank Institute for Fiscal Studies estimates that by the mid-2020s, government borrowing could still reach around £100bn a year – more than £60bn a year higher than forecast by the OBR in March – even if the energy price guarantee has expired.
With Britain’s public debt already close to 100% of GDP, at its highest level since the 1960s, economists expect such large deficits to test the confidence of financial markets. The pound has fallen sharply in recent weeks, while the cost of lending to the British government has risen.