39. Weekly Newsletter
Chancellor’s ‘Mini’ Budget
On Friday, 23rd September the new chancellor, Kwasi Kwarteng MP, unveiled his substantial plan to get growth back to its historic average of 2.5% per year in a bid to lift living standards and generate more money for public services. The Budget works to reduce the tax burden on both the public and companies- representing the largest level of tax cuts since 1972. Some key features from the Budget include:
- Removal of top tax rate of 45% (down to 40%)
- Cap on bankers’ bonuses scrapped
- Corporation tax rise to 25% cancelled (remaining at 19%)
- Tax on homebuyers (stamp duty) starting on properties from £250,000 (was £125,000)
- National insurance rise scrapped (removing planned 1.25% rise)
- Alcohol duty rise cancelled
Mr Kwarteng believes this Budget will save the UK £45bn a year and promised that the Office for Budget Responsibility would publish an economic forecast before 2023 with a second follow-up in the new year. Additionally, the chancellor has pledged future tax cuts and new announcements on “the planning system, business regulations, childcare, immigration, agricultural productivity and digital infrastructure”. Finally, a key feature included the announcement of ‘investment zones’ across the country designed to operate with low tax rates and reduced regulations.
Newspapers & Politics
The UK’s front page news cycle over the last seven days has focused upon the economic challenges currently facing the country. Sweeping tax cuts issued by the government of PM Liz Truss have captured the attention of newspaper praising and critiquing the new strategy to reignite growth into the economy. This has coincided with the Bank of England (BoE) possibly raising interest rates soon again which has pushed up the cost of mortgages and imports. At the start of the week the front pages were dominated by Russian President Vladimir Putin potentially warning of nuclear action against the West. Some of the newspaper front pages over the last week were:
- The Financial Times: Kwarteng pledges more tax cuts as Tory fears for sterling mount
- The Daily Telegraph: US will take ‘catastrophic’ action if Putin uses nuclear weapons
- The Guardian: Starmer- I will reinstate 45% tax to back public services
- Daily Express: Truss Pledges To Build World Beating Economy
- The Sunday Times: Truss’s plan for more migrants to boost growth
- The Daily Telegraph: Kwarteng gambles on biggest tax cuts in half a century
- Financial Times: BoE increases rates by 0.5 percentage points and hints at big November rise
- The Guardian: Economy in recession, says Bank as Kwarteng unveils mini-budget
- Daily Mail: Truss- We Won’t Be Cowed By Putin’s Nuclear Threats
The largest opposition party in parliament, Labour, is currently concluding their four-day party conference, to decide future policies, in Liverpool as the UK now enters ‘party conference season’ whereby the three largest parties all host their annual conferences. The Liberal Democrats were due to have hosted their conference a week ago but this was cancelled as a mark of respect to the Queen. The ruling Conservatives are scheduled to host their conference in Birmingham between the 2nd and 5th of October.
Pound Sterling Falls
The pound on Monday (26th September) fell to record lows against the dollar as global markets reacted to the UK’s biggest tax cuts in 50 years. At one stage the pound neared $1.03 before quickly rebounding back to around $1.08 but lies well below the $1.35 seen at the start of the year. This is partly due to concerns over the UK governments cost of borrowing with an extra £11.8bn borrowed last month (double the rate expected by the Treasury). Several economists have already predicted that the Bank of England (BoE) may call an emergency meeting this week to raise interest rates to help alleviate the fall in the pound and cut inflation.
Only last week the BoE increased interest rates (up 0.5%) to 2.25% but some market-watchers anticipate that rates could pass 5.5% by the Spring. Although, there will be substantial pressure against these moves due to the rise in monthly mortgage costs for millions of British homeowners. The BoE will continue to consider raising interest rates, however, due to a weak pound increasing the cost of importing commodities prices in dollars (such as oil and gas) as well as other imported goods. Other currencies have been falling against the dollar which has left the Euro comfortably below parity with the dollar.