With inflation at almost 10%, an economy in recession according to the Bank of England, confidence at rock bottom and a depressed pound, the new Chancellor of the Exchequer, Kwasi Kwarteng, unveiled, on Friday 23 September, a cocktail of measures to kick-start growth on the floor and try to dampen inflation, with potentially severe side effects for public finances.
“During the most serious energy crisis in generations, this government is with the people”launched Mr. Kwarteng in Parliament, adding that he wanted “reforming the supply side of the economy” in “lowering taxes to boost growth”. “This is how we will reverse the vicious circle of stagnation” economic, he insisted.
The flagship measure of “mini budget”, as it is dubbed, will freeze energy bills for two years, at £2,500 for an average household, a government-funded rebate of at least £1,000. Companies are not to be outdone and see their invoices covered for about half for six months.
Gas and electricity prices have soared since the start of the war in Ukraine, due to limitations in the supply of hydrocarbons from Russia, and the United Kingdom is particularly dependent on gas.
A “win-win for the richest” policy
This massive support for energy bills should cost 60 billion pounds for the first six months, quantified Mr. Kwarteng, whose cocktail of measures also includes a good dose of popular Conservative revenue, including tax cuts. The lowering of social security contributions is confirmed for companies (social levy) as for households, as well as the suspension of certain ecological levies.
The Minister of Finance also confirmed a reduction in the tax on real estate transactions and announced a reduction in the maximum rate of income tax, from 45% to 40%. Prime Minister Liz Truss has herself acknowledged that her government’s policy will mostly favor the better-off.
“Instead of defending working people, the Conservatives are protecting the profits of the energy giants”, which have benefited from soaring oil prices since the start of the Russian invasion of Ukraine, accused Labor finance chief Rachel Reeves. She notes that the energy price ceiling put in place by Mme Truss and Mr Kwarteng will cost tens of billions of pounds, which will be financed by borrowing, with an addition that should fall on the taxpayer.
For its part, the association for the fight against poverty Oxfam speaks of a policy “win-win for the richest”. Economists worry that the mixture of tax cuts and massive aid, financed by borrowing, promises to be toxic for public finances. The Institute for Budget Studies (IFS), for its part, warned that the Truss plan risked putting debt on a “unsustainable trajectory”.
Another Conservative mantra from the new Chancellor of the Exchequer: “Get Britain back to work. » While the UK labor market suffers from a severe shortage of workers, access to minimum income (universal credit) will be accompanied by obligations for certain people who work less than 15 hours per week.
This could include the fact of “apply for a job, participate in job interviews”adds the Treasury, which also wants to encourage the over 50s to return to the labor market, from which they have come out in large proportions since the pandemic, in particular due to long illnesses.
Deregulation and removal of a limit on bankers’ bonuses
In order to attract investment in the United Kingdom and in particular in the financial sector of the City, Kwasi Kwarteng and Liz Truss also want to appear as heralds of post-Brexit deregulation. Mr. Kwarteng notably announced on Friday the removal of a limit on bankers’ bonuses, so far at 200% of annual salary, and a reduction in the maximum bracket of income tax, putting an end to a rule inherited European Union (EU):
“We need international banks to create jobs here (…) and pay taxes here in London, not in Paris, Frankfurt or New York. »
This system, which limits bonuses to twice the base salary, was implemented at European Union level in order to limit excessive risk-taking after the global financial crisis of the late 2000s , which had forced the British State to bail out banks to the tune of tens of billions of pounds sterling.
However, successive British governments and the Bank of England have always criticized this ceiling, judging that it only favored the increase in basic salaries. The United Kingdom has since left the EU without questioning this bonus framework.
Mr. Kwarteng added that he would present a plan in the autumn ” ambitious “ financial regulatory reform “to reaffirm the UK’s status as a global financial services centre”. Finally, the Treasury aims to create 38 zones of” investment “ deregulated, resembling the free ports project of the previous Conservative government.
Kwasi Kwarteng also warned that the right to strike would be more framed and limited only to cases where wage negotiations failed, after the previous government had already authorized the use of temporary workers to mitigate the impact of social movements.
