What can we expect from Kwasi Kwarteng's mini-Budget next week

·5-min read
Chancellor of the exchequer Kwasi Kwarteng. Photo: Wiktor Szymanowicz/Anadolu Agency via Getty
Chancellor of the exchequer Kwasi Kwarteng. Photo: Wiktor Szymanowicz/Anadolu Agency via Getty

Kwasi Kwarteng is set to deliver a mini-Budget next week, setting out details of help for households and businesses amid the cost of living crisis.

The UK's chancellor of the exchequer is expected to announce further energy support and winter tax cuts on 23 September at the end of the mourning period for Queen Elizabeth II.

The so-called "fiscal event", was promised by prime minister Liz Truss as part of her plans to grow the economy and tackle rampant inflation.

So what can we expect from Kwarteng's first economic announcement as chancellor?

Energy bills

Last week, in her first major policy intervention since becoming prime minister, Truss announced an Energy Price Guarantee to freeze bills at £2,500 until 2024 from October.

That would take the average annual energy bill to about £500 higher from what it currently stands at, but £1,000 less than Ofgem's planned price cap rise.

Read more: Inflation data makes another steep interest rate rise likely

Truss also announced a six-month energy support scheme for businesses, schools and hospitals, and businesses are expecting Kwarteng to outline the specifics of how the plan will be funded.

Kwarteng is expected to detail the cost of plans to cap energy prices, the government is expected to borrow at least £100bn to fund the cost of living support package.

The PM has ruled out a windfall tax on oil and gas companies to help fund the package.

Watch: Liz Truss announces energy support plan

National insurance

There is expectation that the chancellor's announcement will include a reversal of the 1.25% National Insurance (NI) increase.

However, the move has been criticised for saving those in the top earning bracket some £1,800, while those on the lowest incomes would get about £7 back a year.

Sanjay Raja, senior economist at Deutsche Bank, said: "We expect the NICs reversal to start almost immediately — in line with recent comments from the PM – and likely in November 2022, adding roughly £7.5bn to this fiscal year's borrowing tally."

Workers and employers have been paying an extra 1.25p in the pound for NI since 6 April. The rise was part of the previous government's plan to fund the NHS and social care.

From April 2023 onwards, the NI rate is planned to decrease back to the 2021-22 level, with a new 1.25% health and social care levy legally introduced.

Read more: Kwasi Kwarteng's journey from Eton to the Treasury

Income tax

During Truss's Conservative leadership campaign, she promised to cut taxes from "day one".

Although not quite day one, Kwarteng's mini-Budget on Friday could include bringing forward by a year the pledge, made by former chancellor Rishi Sunak, to cut income tax by 1% from 2024.

Analysts at Deutsche Bank (DB) expect the move to add a £5bn hole to the public finances.

Liz Truss and Kwasi Kwarteng
Chancellor Kwarteng has said he will champion PM Truss's growth agenda. Photo: Leon Neal/Getty Images

Corporation tax

Truss also said she wants to stop a planned rise in corporation tax and there has been talk about changes to business rates and cuts to VAT to help with the energy crisis.

Corporation tax was due to rise from 19% to 25% in April 2023. Kwarteng is expected to freeze the levy at 19% — a move which is expected to cost the Treasury billions.

Read more: UK economy grows slower than expected as higher prices hit growth

Growth target

Kwarteng has not shied away from his desire to boost UK output, telling Treasury officials to focus on hitting a 2.5% annual growth target, supplementing the Bank of England's 2% inflation goal.

Against the backdrop of an ailing economy, which the BoE says is heading for a recession, surging inflation, and falling wages, economists say growth would be hard to accomplish — but Kwarteng is nonetheless expected to shake-up the fiscal rulebook to set his course.

Raja added: "With the government's first fiscal event, we expect chancellor Kwarteng to set out the Treasury's new key objective: a 2.5% growth target. Supply side reform through lower taxes and deregulation are likely to be the guiding light for the new administration.

"Shifting the Treasury's fiscal mandate would, after all, relay to households, businesses and markets, that the Treasury going forward will be more growth focussed than debt focussed.

"We expect the chancellor to set out only one fiscal rule: ensuring debt-to-GDP remains on a downward trajectory by the end of the forecast horizon. This would grant the government more flexibility when it comes to spending and the public finances."

Read more: Banker bonus cap: What will happen if Kwasi Kwarteng scraps it?

The chancellor is also reportedly considering removing a cap on bankers' bonuses as part of a post-Brexit reforms of City rules.

But critics argue that uncapped bonuses could lead to the kind of risk behaviour that spurred the 2008 financial crisis.

The financial crash had been caused, in part, by a generation of bankers whose big bonuses had given them an incentive to take the kinds of risks that cause a meltdown in the global banking sector.

It is unclear whether an announcement on bankers’ pay would be part of next week's fiscal announcement or in a wider package later on, but officials have called out the timing as millions struggle with the cost of living.

Watch: Why are gas prices rising?