The UK’s new government on Friday unveiled a multi-billion-pound package to support households and businesses hit by the highest inflation in decades, cutting taxes as the nation heads for recession.
Finance minister Kwasi Kwarteng, fresh from being appointed by new Prime Minister Liz Truss, said caps on soaring energy bills would cost about £60 billion ($68 billion) in the first six months.
“The PM has acted with great speed to announce one of the most significant interventions the British state has ever made,” Kwarteng told parliament in a so-called mini budget.
“People need to know that help is coming.”
In a controversial move as millions of Britons face a cost-of-living crisis, Kwarteng axed an EU-inherited cap on bankers’ bonuses following Brexit to bolster the financial services sector.
Kwarteng brought forward a plan to cut the lowest rate of income tax, and reduced the highest to 40 percent from 45.
The chancellor of the exchequer also reversed a planned increase in tax on company profits signed off by Truss’s predecessor Boris Johnson.
He had announced on Thursday he would scrap a tax on salaries, reversing a 1.25-percentage-point rise in National Insurance implemented by his predecessor Rishi Sunak.
Opposition politicians slammed the budget as boosting the rich.
“We have had six so-called plans for growth from the Conservatives since 2010 — here they are, a litany of failure every single one of them,” said Rachel Reeves, finance spokeswoman for the main opposition Labour party.
“The prime minister and chancellor are like two desperate gamblers in a casino chasing a losing run,” Reeves said.
The announcement comes as economists warned that Britain was likely already in recession, as rocketing fuel and food prices take their toll.
Adding to the pain, the pound Friday plunged two percent against the dollar on intensifying fears of a sharp downturn, while London’s stock market also sank.
Sterling hit a fresh 37-year low at $1.1021.
Kwarteng also lifted the point at which tax is levied on purchases of residential properties, as soaring interest rates put the brakes on the housing market.
Kwarteng released his plan a day after the Bank of England suggested the country was slipping into recession as it hiked interest rates again to tame red-hot inflation.
With prices soaring, Britain on Wednesday announced a six-month plan to pay about half of energy bills for businesses.
Truss had already launched a two-year household energy price freeze. The caps will not kick in, however, until Britons face another large hike in gas and electricity bills from October.
The average household will have their annual energy bill capped at £2,500 until 2024 but many are expected to spend above that to keep homes warm over the winter.
Wholesale electricity and gas prices for firms — as well as charities, hospitals and schools — will be capped at half the expected cost on the open market.
UK energy companies including BP and Shell will not get the cap, as their profits soared after Russia’s war in Ukraine sent oil and gas prices soaring.
The Labour party has demanded that the government extends a windfall tax on energy companies launched by Sunak earlier this year.
But Truss ruled it out, arguing that additional taxes hinder economic recovery and efforts by energy groups to transition into greener companies.
She took office on September 6, two days before the death of Queen Elizabeth II, after winning an election of Conservative party members on a tax-cutting platform.
Kwarteng on Friday confirmed plans to shake up the welfare system.
Some 120,000 people in part-time work would face a benefit cut should they fail to take new steps to look for more work.
Kwarteng had described the policy as a “win-win”, pitching it as a way to fill 1.2 million UK job vacancies.
The cost-of-living crisis has triggered some of the biggest strike action in more than 30 years, involving sectors from the rail industry to postal services and even lawyers.
“At such a critical time for our economy, it is simply unacceptable that strike action is disrupting so many lives,” Kwarteng told MPs.
He said the government would legislate “to ensure strikes can only be called once negotiations have genuinely broken down”.