UK scraps corporation tax hike, lifts cap on bankers’ bonuses

LONDON: The UK government on Friday scrapped a rise in corporation tax and lifted the cap on bankers’ bonuses in a controversial bid to boost the faltering economy.
Head of Finance Quasi Kwarteng made the announcement at Parliament as he presented a “mini-budget” to lawmakers.
The UK government is expected to release an emergency budget statement on Friday, outlining how it plans to cut taxes, tame soaring inflation and boost economic growth as recession looms on the horizon.
Finance Minister Kwasi Kwarteng’s “mini-budget” to be presented to lawmakers is expected to cancel a planned corporate tax hike.
Prime Minister Liz Truss, who became UK leader less than three weeks ago, has repeatedly stressed that her Conservative government’s core mission is to cut taxes to promote economic growth. She said this week she was prepared to take “unpopular decisions” such as boosting bankers’ bonuses to attract jobs and investment.
The Institute for Fiscal Studies predicted that although Friday’s statement was not a full budget, it looked set to be the UK’s “biggest tax-cutting fiscal event” for more than 30 years.
“Taxing our way to prosperity has never worked. To raise living standards for all, we must be unapologetic about growing our economy,” Kwarteng said on Thursday. “Tax reduction is critical to that.”
Ahead of his statement on Friday, the head of the finance ministry confirmed he was reversing the increase in workers’ national insurance contributions introduced by the previous government. Kwarteng’s predecessor, Rishi Sunak, imposed the increase to pay for social care and a backlog in the public health service.
Rising inflation and a cost-of-living crisis caused by skyrocketing energy costs are the biggest immediate challenges facing the Truss government. Inflation is at 9.9%, close to the highest Britain has seen since the 1980s, and is forecast to peak at 11% in October.
In the past two weeks, the government has announced it will cut gas and electricity bills for households and businesses, amid fears the poorest will be unable to afford their homes and companies will collapse this winter.
But British officials have not revealed how they plan to fund the relief measures, which analysts say could run into tens of billions of pounds.
Some economists have warned against a sharp rise in government borrowing.
The Institute for Fiscal Studies has warned that borrowing is set to reach 100 billion pounds ($113 billion) a year even after the temporary support measures for energy bills expire in two years. The think tank said that with such debt levels, officials’ claims that lowering tax rates would lead to sustained economic growth was “a gamble at best.”
Paul Johnson, director of the institute, also said the Conservative government’s measures to help millions of people pay their energy bills would not reverse a steady decline in living standards.
“I’m afraid the energy price shock has made us poorer and we’ll be worse off,” he said. “Government can spread pain over time and between people, but ultimately it won’t be able to magically make it go away.”
On Friday, Kwarteng is expected to announce new “investment zones” across England, where the government will offer business tax cuts and help create jobs. It will also detail how the government aims to fast-track dozens of major new infrastructure projects, including transport and energy.
Truss – who takes inspiration from Margaret Thatcher’s small-state, free-market economy – has insisted that economic growth and business tax cuts will benefit everyone in the country.
But critics say Truss’ right-wing instincts are the wrong answer to the UK’s financial crisis.

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