He said he wanted to become the heir di Margaret Thatcher and, looking at the new tax package announced today, the new Prime Minister of the United Kingdom, Liz Truss, he kept his word. According to observers, in fact, the mini-financial law from 45 billion pounds presented today by the Chancellor of the Exchequer, Kwasi Kwarteng, is the most "bold of the last 50 years", writes the Guardian. Bold because all funded with new debt which the Government expects to manage thanks to the possible growth triggered by the measures presented, but also because the beneficiaries of the new arrivals will above all be bankers and the super-rich. The goal is to give a boost to the collapsed British economy by Brexit, inflation and soaring energy prices.
How is the UK economy doing
According to the Bank of England, it has raised rates to 2,25% (highest since 2008), London is already practically in recession, from which it will be able to exit (perhaps) only at the end of 2023. In August inflation it stood at 9,9% and, according to estimates, it will reach 13,3% in the coming months to reach 18% in January 2023.
The comparison with other countries, despite the shared difficulties, is merciless. According to the forecasts of the International Monetary Fund – also thanks to the self-imposed isolationism with Brexit which has exacerbated the difficulties triggered by war, pandemic and inflation – next year the United Kingdom will register the lowest growth among G7 countries, while according to the OECD, only Russia will be able to do worse in the G20.
Liz Truss's Gambit: Cutting Taxes for the Rich
The most controversial measure among those announced today is undoubtedly the elimination of the 45% rate, the highest, for incomes exceeding £150 a year. For the rich, therefore, the maximum rate will drop to 40%, 5 percentage points less than today. Income tax changes apply in England, Wales and Northern Ireland. “The Treasury – explains the Guardian – has acknowledged that around 660 super-rich will benefit from the elimination of the 45% tax rate, saving an average of 10 pounds a year”.
What about ordinary citizens? It is expected for them a 1% cut, with a reduction in the basic rate which currently weighs on incomes between 20 and 60 pounds, from 20 to 19%.
Take off the cap on bankers' bonuses
Another provision that has caused a sensation concerns the intention announced today by the Chancellor of the Exchequer, the equivalent of our Finance Minister, to cancel the cap on bankers' bonuses introduced after the crisis of 2008-2009.
“The British economy will only grow if the financial sector grows,” Kwarteng told the House of Commons, “we want people to invest and pay taxes here. Not in Paris, not in Frankfurt, and not even in New York."
The other measures
It goes in the same direction Stop the corporate tax hike, which should have risen to 23% and instead will remain at 19%. Also eliminated the 1,25% increase in thepayroll tax (or National Insurance) which had come into effect at the beginning of 2022 and which will be canceled as of 6 November. Via, but only starting from April 2023, also the increase in the rates of thedividend tax, which had been introduced together with the payroll tax increase.
Also expected the stamp duty cut which weighs on the purchase of real estate. The threshold from which first home buyers will start paying stamp duty will rise from £300 to £425 and the maximum value of the properties on which it is possible to request tax relief for the purchase will be increased from £500 to £625 of the first house.
A small change will also come for foreigners: those arriving from abroad will no longer have to pay VAT on shopping.
No hedging and unknown growth
The fact that the plan presented today was not accompanied by the usual independent assessment by the OBR, the Office for Budgetary Responsibility which usually scrutinizes Treasury expenditure to try to understand, contributed to making many British economists turn up their noses coverage and provide forecasts on the possible economic impact of the measures. “In answering a question as to why it could not produce the forecasts of theFig, the Treasury said the Office would not currently be able to publish full forecasts, thus conceding that there are no estimates on how much the plan could really affect growth in the UK,” explains the Guardian. Kwarteng also added that, since it was not a Budget, the plan did not need the calculations of the OBR.
La bet by Liz Truss is however clear: to finance everything with new debt, counting on the fact that the economic growth triggered by the plan will help the Government to make ends meet.
The reaction of the financial markets
After the announcement of the maxi plan of tax cuts, the pound it lost 1,6% to 1,107, with a low for the day at 1,102, reaching its lowest level since 1985. The exchange rate between the euro and the pound, on the other hand, rose to 0,8855, a value not seen since February 2021. In meanwhile, irgovernment bond yields British 13-year bonds recorded the biggest one-day surge in 3,8 years, exceeding 2% and the London Stock Exchange is on course to close the session more than XNUMX% in the red, at its lowest level since July, in a day – it must be said – negative for all the European markets.
