Tax wars: chancellor pledges further cuts while Starmer vows to bring back 45p rate for top earners

25 September 2022, 23:19

The Conservatives and Labour have set out starkly opposing plans on taxes, with Tory chancellor Kwasi Kwarteng promising yet more cuts, and opposition leader Sir Keir Starmer pledging a return to a higher rate of income tax for top earners.

Mr Kwarteng came under fire this week for his plan to cut the top rate of income tax, part of a raft of tax cuts amounting to £45 billion.

Sir Keir was among the critics, describing the plan to cut income tax for the highest earners as the wrong decision during a cost of living crisis for ordinary people.

But Mr Kwarteng appeared undeterred, promising that "there's more to come" in an interview on Sunday. He said: "We’ve only been here 19 days. I want to see, over the next year, people retain more of their income because I believe that it’s the British people that are going to drive this economy."

Kwasi Kwarteng axes top income tax rate for highest earners

Speaking on the BBC's Laura Kuenssberg show on Sunday, Mr Kwarteng said there would be an overall review of the tax system to make it simpler.

He said: "We’ve got to have a much more front-footed approach to growth and that’s what my Friday statement was all about. If we can get some of the reforms, if we get business back on its feet, we can get this country moving and we can grow our economy, and that’s what my focus is 100 per cent about."

Options include getting rid of the tax on child benefit that affects parents earning more than £50,000 per year, and allowing couples to transfer their personal tax allowance if they were taking time off to care for a relative.

Government policy analyst comments on Kwarteng's mini-budget

Mr Kwarteng added: "When you have a tax system, a tax burden today, which is higher than at any time in the last 70 years, people begin to worry and business begins to worry and says what are the incentives to activity in this economy? How do we invest and grow, why should I set up a business, or why should I employ people?

"Or why should I even go to work if I’m being taxed to a very, very high degree? And I wanted to change that narrative, I wanted to change that direction."

Caller on why he 'literally cheered' when he heard the mini-budget

Speaking on the same programme, Sir Keir said that Mr Kwarteng's plan was "the wrong choice".

'With the mini-budget they've basically nuked themselves.'

But he said that he would stick with his opponents' decision to cut the basic rate of tax to 19% from 20% to help "reduce the tax burden on ordinary people".

The 'goal' for Keir Starmer has 'never been wider'

Sir Keir added: "I do not think that the choice to have tax cuts for those that are earning hundreds of thousands of pounds is the right choice when our economy is struggling the way it is, working people are struggling in the way they are... that is the wrong choice."

Discussing the cut to the basic rate of income tax, he said: "I've long made the argument that we should reduce the tax burden on working people.

"That's why we opposed the national insurance increase earlier this year, which of course the government is now reversing."

Mr Kwarteng's tax plans appear to have been unpopular, if opinion polls and currency markets are to be believed. The pound slumped sharply against the dollar after his announcement on Friday.

Meanwhile a YouGov survey found 63% of 9,400 adults surveyed believed the new measures will help wealthier people more, with just 3% thinking the poorer would benefit more and just 9% believing it would help both groups equally.

A total of 52% believe they will not help grow the economy.

But despite the pound's slump and the public polling, Mr Kwarteng – speaking after his mini-budget was delivered to MPs – said Friday was a "very good day for the UK".

"We're very, very upbeat about what we can do as a country. We were facing low growth and we want a high-growth economy and that's what this morning was all about," he said.

Mr Kwarteng said of the pound: "I don't comment on market movements but what is good for the economy is creating an environment where people can come and invest in the UK and that's exactly what we've done."

The Treasury's tax cuts 'don't do much' for economic growth

And he added: "It's absolutely fair to reduce people's taxes and to make sure, as you've admitted, that people are going to retain more of what they earn."The path we were on was simply unsustainable.

"We couldn't simply raise taxes indefinitely and hope that we would get prosperity."

Ms Truss tweeted: "Growth is key to delivering more jobs, higher pay and more money to fund public services, like schools and the NHS.

"Our Growth Plan sets out how we are going to rebuild our economy and deliver for the British people."

'It is nothing less than sickening.'

Mr Kwarteng came under fire from some unexpected quarters, including some senior figures in his own party.

Lord Barwell, a Tory peer who previously served as Theresa May's chief of staff during her time in No10, tweeted strong views after the budget.

"This wasn't a mini Budget. Taxes were too high, but cutting my taxes while doing nothing for those on Universal Credit is wrong.

"Funding this by borrowing more when debt interest is already at record levels is reckless. Looser fiscal policy is going to mean higher interest rates."