UK scraps corporate tax hike, lifts cap on bankers’ bonuses to boost economy

The UK government scrapped a corporate tax hike on Friday and lifted the cap on bankers’ bonuses in a controversial bid to revive the faltering economy.

Treasury Chief Kwasi Kwarteng made the announcement in Parliament by presenting a mini-budget to lawmakers.

The British government is expected to issue an emergency budget statement on Friday outlining how it plans to cut taxes, rein in soaring inflation and boost economic growth as a recession looms.

Treasury chief Kwasi Kwarteng’s mini-budget, to be presented to lawmakers, is expected to scrap a planned corporate tax hike.

Prime Minister Liz Truss, who became leader of the UK less than three weeks ago, has repeatedly stressed that her Conservative government’s main mission is to cut taxes to boost economic growth. She said this week that she was ready to take unpopular decisions like increasing bankers’ bonuses to attract jobs and investment.

The Institute for Fiscal Studies predicts that while Friday’s statement is not a full budget, it appeared to be the UK’s biggest tax-cutting fiscal event in 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 Thursday. Tax reduction is crucial in this regard.

Ahead of his statement on Friday, the Treasury chief confirmed he was reversing a hike in workers’ National Insurance contributions that had been introduced by the previous administration. Kwarteng’s predecessor, Rishi Sunak, imposed increased social care payments and a backlog in the public health service.

Soaring inflation and a cost of living crisis caused by soaring energy costs are the biggest immediate challenges facing Truss’s government. Inflation stands at 9.9%, near the highest level Britain has seen since the 1980s, and is expected to peak at 11% in October.

Over the past two weeks, the government has announced it will cap gas and electricity bills for households and businesses, fearing that the poorest will not be able to afford to heat their homes and businesses will go bankrupt this winter.

But British officials have not disclosed how they plan to fund the relief measures, which analysts say could amount to tens of billions of pounds.

Some economists have warned of the sharp increase in government borrowing.

The Institute for Fiscal Studies has warned that borrowing is expected to reach 100 billion pounds ($113 billion) a year, even after temporary measures to support energy bills end in two years. The research institute said that with such debt levels, officials’ claims that cutting tax rates would lead to sustained economic growth were a gamble at best.

Paul Johnson, director of the institute, also said the Conservative government’s measures to help millions pay their energy bills will not reverse a steady decline in living standards.

I fear the energy price shock has made us poorer and worse off, he said. The government can spread the pain over time and between people, but ultimately it cannot magically make it go away.

On Friday, Kwarteng is expected to announce new investment zones across England where the government will offer tax cuts for businesses and help create jobs. He will also give details of how the government aims to fast-track dozens of major new infrastructure projects, including in transport and energy.

Truss, who draws inspiration from Margaret Thatcher’s small state, free market economy, insisted that growing the economy and tax cuts for businesses will benefit everyone in the country.

But critics say Truss’ right-wing instincts are the wrong answer to Britain’s economic crisis.

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