Freezing energy bills, tax cuts, hardening of social minima and deregulation: London unveiled a cocktail of measures on Friday to revive growth and reduce inflation, with severe potential side effects for public finances.
It was Finance Minister Kwasi Karteng who presented the vast financial plan, one of the priority objectives of the new conservative Prime Minister Liz Truss.
The flagship measure of the “mini-budget”, as it is nicknamed, will be the freezing of energy bills for two years, at 2500 pounds for an average household, a rebate of at least 1000 pounds financed by the government. Companies are not to be outdone and see their invoices covered for regarding half for six months.
Gas and electricity prices have soared since the start of the war in Ukraine, due to limitations on the supply of hydrocarbons from Russia, and the United Kingdom is particularly dependent on gas.
Lower taxes
This massive support for energy bills should cost 60 billion pounds for the first six months, quantified Kwasi Kwarteng, whose cocktail of measures also includes a good dose of popular revenue from the Conservatives, in particular tax cuts.
The lowering of social 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 lowering of the maximum rate of income tax, from 45% to 40%.
The wealthiest favored
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 energy giants”, which have benefited from soaring oil prices since the start of the Russian invasion of Ukraine, accused the official Finance Labor Party, Rachel Reeves.
She notes that the energy price cap put in place by Liz Truss and Kwasi Kwarteng will cost tens of billions of pounds which will be financed by borrowing, with an addition which should fall on the taxpayer.
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 has warned that the Truss plan risks putting debt on an “unsustainable path”.
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