UK Financial Statement Update
The financial statement issued this morning by Kwasi Kwarteng, the new Chancellor, set out the new cabinet’s vision for the future of the UK by cutting taxes and promising to reduce red tape and regulation. This is a move away from the high tax, high regulation, and stagnant growth of the last two decades.
The fact-light and personal attack style of the Labour response show that they do not really have a solid argument against the actions taken. The policy outlined is indeed a look back to the 1980s and has all the right signs that growth will follow in the medium term. This is a move away from centralist government, along the lines taken by Margaret Thatcher. Although he did not mention it by name, he referenced the Leifer curve on at least two occasions. This famous theory and chart show that there is a peak in which maximum tax revenues are collected as past this peak the higher the tax the less the return to the exchequer. To illustrate this, when the tax rate was cut from 50% to 45% previously, tax takings went up.
The highlights are:
- The national insurance raise and the introduction of national insurance on dividends are both scrapped.
- The planned increase in Corporation tax is scrapped
- A 1% decrease in the basic rate of income tax is effective next April.
- No increases in alcohol duty and rethink of the wine duty following Brexit.
- A reduction in Stamp duty
- Extensions to the allowances for investing in businesses and for business investments in capital assets
Further updates will follow once the details are published and digested.