LONDON, Sept 23 (Reuters) – Britain’s new finance minister Kwasi Kwarteng unleashed historic tax cuts and huge increases in borrowing on Friday in an economic agenda that floored financial markets, with sterling and British government bonds in freefall.
Kwarteng scrapped the country’s top rate of income tax, cancelled a planned rise in corporate taxes and for the first time put a price tag on the spending plans of Prime Minister Liz Truss, who wants to double Britain’s rate of economic growth.
Investors unloaded short-dated British government bonds as fast as they could, with the cost of borrowing over 5 years seeing its biggest one-day rise since 1991, as Britain raised its debt issuance plans for the current financial year by 72.4 billion pounds ($81 billion). The pound slid below $1.11 for the first time in 37 years.
Kwarteng’s announcement marked a step change in British economic policy, harking back to the Thatcherite and Reaganomics doctrines of the 1980s that critics have derided as a return to “trickle down” economics.
“Our plan is to expand the supply side of the economy through tax incentives and reform,” Kwarteng said.
“That is how we will compete successfully with dynamic economies around the world. That is how we will turn the vicious cycle of stagnation into a virtuous cycle of growth.”
A plan to subsidise energy bills will cost 60 billion pounds just for the next six months, Kwarteng said. The government has promised households support for two years as Europe wrestles with an energy crisis.