The UK Treasury estimates that the cuts will wipe £45 billion ($48 billion) off annual government revenues over the next five years. That’s the biggest tax cut in half a century, according to the Institute for Fiscal Studies.
While all households will see their income tax rates fall, and have their energy bills capped at an average of £2,500 a year ($2,689), it will be the richest people that benefit most.
Kwarteng slashed the top rate of income tax — paid by those earning over £150,000 ($161,327) — to 40% from 45%.
That will put an average £10,000 ($10,755) in the pockets of the roughly 600,000 people currently paying the highest rate of tax, or just over 1% of adults, the IFS calculated in a Friday report. Those on incomes over £1 million ($1.08 million) will gain an extra £40,000 ($43,021) a year.
“A small number of extremely high-income individuals will gain so much,” the independent think tank said.
Kwarteng also announced he would accelerate a plan to cut the basic rate of income tax from 20% to 19%. More than 27 million people in this tax band are expected to receive an additional £125 ($134) a year, according to the IFS.
“The highest-income households are the biggest winners from the [Kwarteng’s] changes to personal taxation,” the Resolution Foundation said in a report published over the weekend.
The anti-poverty research group estimated that nearly half of the gains Kwarteng’s personal tax cuts will go to the richest 5% of households, while only 12% of the benefit will go to the poorest half.
‘More to come’
“We’ve actually put more money into people’s pockets,” he told the broadcaster. “We’re bringing forward the cut in the basic rate [of income tax] and there’s more to come.”
The government also announced Friday that it would remove a cap limiting bankers’ bonuses to double their annual salary in a bid to encourage global banks to invest in the country. The cap was introduced after the global financial crisis to deter excessive risk-taking.
That means the import-reliant economy can expect to pay more for its food, energy and other goods, jacking up prices for consumers at a time when the Bank of England is trying to get inflation under control.
— Julia Horowitz contributed reporting.