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Kwarteng’s debt plan will be brought forward after U-turn on tax

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Written by: Rebecca Goodman
04/10/2022
The Chancellor, Kwasi Kwarteng, has confirmed he will set out his UK debt plan later this month.

Update (16.00pm 4 October 2022): According to an interview with GBNews, the Chancellor has now said that the full fiscal plan will take place on 23 November as previously planned.

The details weren’t expected until 23 November but after the markets reacted badly to his growth plan, he said he would publish the plan later this month.

It will include details about how tax cuts will be made and paid for alongside official economic forecasts.

It comes after he was forced to make a U-turn on the decision to scrap the 45p top rate of income tax, a key measure of his recent mini Budget.

Just 10 days before the U-turn, in Kwarteng’s mini Budget he had announced the additional rate of tax – 45% for those earning £150,000 or more – would be abolished from April 2023.

This move was expected to benefit just 1% of the population at a cost of £2bn to the Exchequer. It would also allow the wealthiest to earn £500 of savings interest for the first time under the Personal Savings Allowance.

The Chancellor is now expected to publish his fiscal plan, along with forecasts from the Office for Budget Responsibility (OBR), later this month.

Mr Kwarteng said in a speech at the Conservative Party conference in Birmingham that there would be no more “distractions”.

He also admitted the mini Budget, which caused the pound to plummet and mortgage rates to rise, had caused “a little turbulence” in the markets.

He said: “But I can be frank, I know the plan put forward only ten days ago has caused a little turbulence.

“I get it. We are listening and have listened.”

‘More volatility is likely to follow’

The decision to reverse the planned 45p tax cut has been welcomed by the markets yet more economic volatility has been predicted.

Richard Hunter, Head of Markets at interactive investor, said: “The UK government’s decision to reverse part of its previous tax cutting plan also had a disproportionately positive affect on sentiment generally, with sterling recouping some of its previously precipitous losses following the initial announcement.

“Nonetheless, the longer term impact of the attempt to stimulate growth is yet to be proven, while the government’s initial announcement seemed at odds with what the Bank of England is trying to achieve.

“More volatility is likely to follow as the global economy grapples with high and persistent inflation and the central banks’ attempts to tame it without tipping into recessionary territory.”

Liz Truss refuses to rule out benefits cut

Separately, Prime Minister Liz Truss has said the plan to get rid of the top rate of tax was only a tiny part of the plan for economic growth.

Truss has also refused to rule out a real-terms cut to benefits in order to fund the government’s growth plan.

The former PM, Boris Johnson, had promised to increase benefits in line with inflation – which is currently at 9.9%. However, Truss is yet to confirm if she will honour this.

Morgan Wild, Head of Policy at Citizens Advice, said: “People coming to us are already in crisis. Some are skipping meals to top up their prepayment meter, others are using a boiled kettle to wash because they can’t afford a hot shower.

“If benefits don’t keep up with living costs, this real-terms cut will be worse than every year of the benefits freeze combined. The devastating trends we’re seeing in people needing our support will go through the roof.”

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