25th September 2022
During a ‘mini-budget’ delivered on 23 September, the Chancellor outlined a Growth Plan centred on the biggest package of tax cuts in fifty years. As well as reversing April’s National Insurance rise and the planned increase in Corporation Tax, Mr Kwarteng also announced Income Tax and Stamp Duty cuts with the total cost of the package estimated to be almost £45bn by 2027. On 3 October, the Chancellor announced a U-turn on plans to scrap the 45p rate of Income Tax.
These plans are set to be funded via a large increase in borrowing, with Treasury estimates suggesting an additional £72bn of government borrowing as a result of the Chancellor’s announcement. Paul Johnson, Director of the independent Institute for Fiscal Studies, described the plans as a “big gamble” and sterling came under intense pressure after the statement as financial markets gave their verdict on Mr Kwarteng’s Growth Plan.
In an unusual intervention, the International Monetary Fund (IMF) also openly criticised the Chancellor’s proposals, warning that ‘large and untargeted fiscal packages’ were not recommended at a time of ‘elevated inflation pressures.’ The IMF, which works to stabilise the global economy, said it was ‘closely monitoring’ developments in the UK and urged the government to ‘re-evaluate’ its policies in the coming weeks.
Despite the criticism and market turmoil, the government had insisted the tax cuts outlined in the Growth Plan are the ‘right plan.’ The Treasury has also now announced a date when the Chancellor will set out details of his Medium-Term Fiscal Plan. Mr Kwarteng will deliver his next fiscal statement on 23 November and this time it will be accompanied by growth and borrowing forecasts produced by the Office for Budget Responsibility (OBR).