From major tax cuts to energy rescue scheme: What outgoing UK PM Liz Truss' fiscal plans entailed

Kwasi Kwarteng (AP Photo/Kirsty Wigglesworth)

After UK Prime Minister announced her resignation from the post on October 20, amid facing mounting pressure to quit, here's a look at her fiscal policies that backfired and triggered a bond market rout.

In light of the economic policies, Truss's resignation came a week after she fired her finance minister Kwasi Kwarteng and replaced him with Jeremy Hunt.

Here are some of the fiscal plans chalked out by Kwarteng in his mini-budget that he unveiled on September 23 in an effort to support households and businesses hit by decades-high inflation, COVID-19 pandemic and other geopolitical factors.

Major announcements from Kwarteng's mini-Budget speech:

Higher income-tax slab scrapped:

In one of the landmark decisions, Kwarteng announced that he has scrapped Truss's predecessor Boris Johnson's plan to hike taxes on salaries. In his speech, the FM said that the UK government will scrap the 45 percent top rate of income tax, replacing it with a 40 percent rate, in the biggest surprise of the mini-Budget.

Kwarteng added that he would also cut the basic rate of income tax by one percent in the pound to 19 percent in April 2023.

The news came after the Bank of England warned that Britain was slipping into recession, as rocketing fuel and food prices take their toll.

Stamp duty tax on property purchases cut:

The chancellor stated that stamp duty, a tax on house purchases, will be cut to help families buy homes, with a threshold at which it is first paid doubling to 250,000 pounds ($280,000) for home movers.

The nil-band threshold for first-time buyers will also increase to 425,000 pounds from 300,000 pounds, he said, adding that the changes are permanent and effective immediately.

Stamp duty, payable in England and Northern Ireland, is a graduated tax, which rises in steps to 12 percent on the portion of the property price above 1.5 million pounds.

VAT-free shopping for overseas visitors, tax incentives for investment zones

The finance minister announced that Britain will introduce sales tax-free shopping for overseas visitors to boost the retail sector. Moreover, he added that there will be tax incentives for businesses in newly announced investment zones and liberalise planning rules for specified agreed sites.

Energy rescue scheme

Kwarteng said Britain will spend about 60 billion pounds ($67 billion) on subsidising gas and electricity bills for the next six months starting October for households and businesses

As per reports, Kwarteng said the government would take “difficult decisions” to try to achieve 2.5 percent annual growth of the economy through tax incentives and deregulation. “That is how we will compete successfully with dynamic economies around the world,” he said.

However, UK energy companies including BP and Shell will not benefit from the cap, as they enjoy soaring profits after the invasion of Ukraine by major oil and gas producer Russia.

Corporation tax increase scrapped

Britain has imposed a 19 percent corporation tax rate - the lowest among the G7 club of rich nations. This was planned to rise to 25 percent in the next fiscal, but that has now been scrapped.

Cap on bankers’ bonuses removed

Caps on bankers' bonuses will be scrapped to boost London's post-Brexit competitiveness against financial capitals like New York and Hong Kong. Kwarteng said the government will set out a more ambitious set of financial services reforms later in the year.

“We are going to get rid of it . . . to reaffirm the UK’s status as the world’s financial services centre I will set out an ambitious package of regulatory reforms,” he told the House of Commons, as per agencies.

Payroll tax rise reversed

The government had also announced that it was scrapping a 1.25 percentage point increase in payroll tax - or national insurance - that took effect earlier this year. It will be reversed from November 6.

Earlier, Britain's main opposition Labour party had demanded that the government extends a windfall tax on energy companies that former finance minister Rishi Sunak launched earlier this year. But Truss ruled out such a move, arguing that additional taxes will hinder economic recovery and efforts by energy groups to transition into greener companies.

Growth is at the heart of the new government's policy, with Kwarteng on Wednesday outlining plans to shake up the welfare system. He had described the policy as a "win-win", pitching it as a way to fill 1.2 million UK job vacancies.

(With inputs from agencies)