The tax proposals announced by the UK Chancellor Quasi Kwarteng were not actually part of an official budget. The UK announced the biggest tax cuts in over 50 years. The current UK Prime Minister, Liz Truss, mentioned she wanted to simplify the tax system, lower taxes, and make the UK more competitive internationally.
The Chancellor acted on the basis that there were good economic reasons for tax cuts. They are usually designed to kick start the economy and enable a country to:
- Become a competitive and productive economy
- Support and encourage growth
- Attract foreign investment
As a result of the negative public reaction to the Chancellor Quasi Kwarteng’s plan to abolish the top rate of taxation of 45%, he announced 10 days later that the proposal would be withdrawn. Even though getting rid of the top tax rate would have only cost the government around £2 billion out of £45 billion worth of tax cuts there has been a lot of backlash and complaints from the public. The unfunded tax break for the wealthiest people (around 660,000) was announced during Kwasi Kwarteng’s mini budget resulting in a lot of volatility in the market.
A similar situation happened with corporate tax and National Insurance. The proposed Corporation Tax increase from 19% to 25%. The 1.25% increase in national insurance announced by the previous Chancellor Rishi Sunak have been abandoned. The reversal of the National Insurance also applies to employers.