Home Financial responsibility New UK Finance Minister Kwarteng seeks to end ‘cycle of stagnation’

New UK Finance Minister Kwarteng seeks to end ‘cycle of stagnation’


Kwasi Kwarteng arrives at number 10 Downing Street in London, Britain September 6, 2022. REUTERS/Phil Noble/File Photo

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  • Kwarteng will make a statement to the UK Parliament at 08:30 GMT
  • Tax cuts, urban planning reforms and energy on the agenda
  • Plan could cost up to £200bn, economists say
  • British pound weakest against dollar since 1985

LONDON, Sept 23 (Reuters) – Britain’s new finance minister Kwasi Kwarteng will detail nearly 200 billion pounds ($225 billion) in tax cuts, energy subsidies and planning reforms on Friday, in the as part of Prime Minister Liz Truss’ attempt to end “Treasury orthodoxy”. ” and drive growth.

Truss beat former finance minister Rishi Sunak to the leadership of the Conservative Party – and with him, to the post of prime minister – largely while campaigning against tax hikes announced by Sunak in the wake of the coronavirus pandemic. COVID-19.

After a delay caused by the death of Queen Elizabeth – which came just hours after Truss set up an expensive grant scheme to tackle soaring energy costs – Kwarteng will present the new government’s program to parliament to 9:30 a.m. / 8:30 a.m. GMT.

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Financial markets will also receive an upfront price for the proposals as the UK’s Debt Management Office will publish new borrowing plans after Kwarteng finishes his speech.

The market environment could hardly be more hostile for Kwarteng. The pound fell to its lowest level against the dollar since 1985 on Thursday, while British government bonds recorded their biggest one-day drop since the start of the pandemic. Read more

Much of the drop reflects the US Federal Reserve’s rapid hike in interest rates to tame inflation – which sent markets tumbling – but some investors are also wary of Truss’ willingness to borrow big to fund the growth.

Asked on Friday how Britain would fund spending while cutting taxes, a cabinet minister said economic growth was the answer. Read more

A Reuters poll this week showed that 55% of international banks and economic consultancies surveyed believed UK assets were at high risk of losing confidence. Read more

Consumer sentiment figures on Friday underscored the challenge facing Kwarteng, with household sentiment falling to its lowest level since records began in 1974. read more

The Bank of England on Thursday said the Truss energy price cap would limit short-term inflation, but government stimulus was likely to add to inflationary pressures, at a time when it is struggling against inflation approaching a 40-year high.

Paul Johnson, director of the Institute for Fiscal Studies (IFS) think tank, said the Truss and Kwarteng tax cuts could be the biggest since 1988 and risk putting Britain’s public debt on an unsustainable path .

The IFS, together with US bank Citi, estimates household energy subsidies will cost around £120bn over two years, while six months of business energy subsidies will cost £40bn. Read more

It is a one-off measure, and the biggest concern for the IFS is around £30bn in permanent tax cuts – starting with £14bn in payroll tax cuts, confirmed on Thursday, and £15bn in billion pounds of corporate tax cuts. Read more

A property tax cut on home purchases is also likely, according to the Times. Read more

However, despite the sweeping tax and spending measures, the government had decided not to release new growth and borrowing forecasts from the Office for Budget Responsibility, a government watchdog, until a more official budget. late this year.

For Kwarteng, tax cuts and deregulation are a way to end what he calls “a cycle of stagnation” that has driven tax rates to their highest levels since the 1940s.

“We are determined to break this cycle. We need a new approach for a new era of growth,” he is expected to tell parliament, according to speech excerpts released by his office.

One of the measures he plans to announce are “investment zones” which offer businesses generous but temporary tax breaks, as well as relaxed planning rules, to encourage the construction of shopping malls, apartment and office buildings.

“We will liberalize planning regulations on agreed specified sites, freeing up land and accelerating development,” Kwarteng is expected to say.

The British Chambers of Commerce (BCC) welcomed the proposal but said it should be more widespread.

“We need to see this reform across the country because it is currently too slow, complex and uncertain. It stifles business investment, expansion and growth,” said BCC chief executive Shevaun Havilland.

($1 = 0.8872 pounds)

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Reporting by David Milliken; Editing by Kirsten Donovan and Catherine Evans

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