© Reuters. Mini-Budget live: Chancellor to announce tax cuts and more from 9.30am
New chancellor of the exchequer Kwasi Kwarteng will unveil a mini-budget this morning that is widely expected to include his and new prime minister Liz Truss’s big gamble on slashing tax in order to try and boost UK growth via supposed trickle-down economics.
The “fiscal event” will be announced in the House of Commons at around 9.30am this morning, following a Cabinet meeting to approve the plans.
Following the Bank of England yesterday raising to their highest level in 14 years and warning that it believed the economy had already gone into recession, Kwarteng reportedly intends to set an official target of raising real GDP growth to 2.5% a year.
He is expected to say he wants to usher in a “new era focused on growth”, which he believes “will deliver higher wages, greater opportunities and sufficient revenue to fund public services, now and into the future.”
There was confirmation yesterday that the 1.25pp increase in National Insurance is going to be reversed from 6 November.
Other expectations are that the chancellor will bring forward a 1p cut in the basic rate of income tax, which was due to come into effect in April 2024, and raise the threshold for stamp duty as a boost to the housing market.
When Kwarteng sits down, shadow chancellor Rachel Reeves and then other MPs will be able to respond.
Reeves wrote in the FT overnight that the government’s proposals are “just another zigzag on a path of policy failure tracking across the past 12 years of the economy” and that Truss and Kwarteng’s trickle-down economics is a “discredited and inadequate” approach and “will not unleash the wave of investment and consumption she claims”.
8.50am: Analysts’ and economists’ expectations
The UK mini-budget will capture the most attention this morning, says Marc Ostwald, chief economist and global strategist at ADM Investor Services, following on from the MPC split decision to hike rates and to start active gilt sales in October.
“The question is how much in the way of additional borrowing is envisaged in the new Truss govt measures to cap energy prices for both consumers and businesses, and to kick start the economy, as well as the extent to which these will add to medium-term inflationary pressures, and by extension complicate the BoE’s already unenvious task. There will also be a good deal of discussion around the heavily signalled tax cuts (above all stamp duty), and whether there will be any material benefit for the economy from these,” Ostwald says.
Gilts were “in paroxysms” yesterday after the Bank of England hike, says Neil Wilson at Markets.com, with bond investors looking ahead to this mini-Budget and what it will mean for borrowing.
The 10yr gilt yield topped 3.5% for the first time since 2011 after the chancellor announced the government would reverse the national insurance increase, with spreads with European neighbours widening and the gap between UK and German debt the largest since 2015.
On the ‘fiscal event’, Wilson says: “Where’s the mandate? I’m all for lower taxes and a smaller state, but where is the mandate for some of what’s being talked about in this mini-Budget? Perhaps that’s one for political and constitutional analysts to discuss – should Truss have been forced to call an election?
“Anyway, chatter this morning points to the biggest fiscal event in decades with all kinds of tax cuts, from stamp duty to the basic rate of income tax.”
He also notes an IFS-Citi report argues the Kwasi-Budget is unsustainable with too much borrowing just as rates go up.