Freezing energy bills, tax cuts, deregulation… London announced measures to boost its growth

With inflation at almost 10%, an economy in recession according to the Bank of England, confidence in the 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 into the floor and try to slow inflation, which will likely have a severe impact on public finances.

“During the worst energy crisis in generations, this government is with the people”launched Mr. Parliament House, added that he wanted to “changing the supply side of the economy” on “lowering taxes to promote growth”. “This is how we reverse the vicious circle of stagnation” economy, he insisted.

The main measure of “mini budget”, as it is called, will freeze energy bills for two years, at 2,500 pounds for the average household (2,830 euros), a government-funded rebate of at least 1,000 pounds. Companies don’t have to lose and see their invoices covered in half of six months.

Gas and electricity prices have risen since the start of the war in Ukraine, due to restrictions on the supply of hydrocarbons from Russia, and the United Kingdom is particularly dependent on gas.

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A “win-win for the richest” policy

This huge support for energy bills should cost 60 billion pounds (68 billion euros) in the first six months, Mr. Kwarteng, whose cocktail of measures also includes a good dose of popular conservative recipes, especially tax cuts. The reduction of social security contributions is confirmed for companies (social tax) as for households, as well as the suspension of some ecological levies.

The Minister of Finance also confirmed the reduction of the tax on real estate transactions and announced the reduction of the highest income tax rate, from 45% to 40%. Prime Minister Liz Truss has acknowledged that her government’s policy is generally in favor of the better.

“Instead of protecting workers, the Conservatives are protecting the profits of energy giants”, which has benefited from rising oil prices since the start of Russia’s invasion of Ukraine, accused Labor finance chief Rachel Reeves. He noted that the energy price ceiling put in place by MME Truss and Mr.

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For its part, the association for the fight against poverty Oxfam talks about a policy “win-win for the richest”. Economists worry that the mix 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 risks putting the debt in a “Unsustainable trajectory”.

Another conservative mantra from the new Chancellor of the Exchequer: “Put Britain back to work. » As the UK labor market suffers from a severe shortage of workers, access to the minimum income (universal credit) will be accompanied by obligations for some people who work less than 15 hours per week.

This may include the fact of “applying for a job, attending job interviews”added the Treasury, which also wants to encourage the over 50s to return to the labor market, where they have exited in large proportions since the pandemic, mainly due to long-term illnesses.

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Deregulation and delimitation of bankers’ bonuses

To attract investment in the United Kingdom and especially in the City’s financial sector, Kwasi Kwarteng and Liz Truss also want to appear as heralds of post-Brexit deregulation. Mr. Kwarteng announced on Friday the removal of the limit on bankers’ bonuses, until now at 200% of the annual salary, and a reduction in the highest income tax bracket, ending an inherited rule in the European Union (EU):

“We need international banks to create jobs here (…) and pay taxes here in London, not in Paris, Frankfurt or New York. »

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This system, which limits bonuses to twice the base salary, was implemented at the European Union level to limit excessive risk-taking after the global financial crisis of the late 2000s, which forced the British State to bailed out the banks to the tune of tens of billions of pounds sterling.

However, successive British governments and the Bank of England have often criticized this ceiling, judging that it only favors an increase in basic salaries. The United Kingdom has since left the EU without questioning this bonus framework.

Mr. Kwarteng added that he will present a plan in the fall “ambitious” reform of financial regulation “to reaffirm the UK’s status as a world financial services center”. Finally, the Treasury aims to create 38 zones of“investment” deregulated, similar to the free ports project of the previous Conservative government.

Kwasi Kwarteng also warned that the right to strike will be more framed and limited to cases where wage negotiations have failed, after the previous government allowed the use of temporary workers to reduce the impact of activities. in society.

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The World with AFP

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