The Government of Liz Truss establishes as an objective an economic growth of 2.5% per year
The British Chancellor of the Exchequer, Kwasi Kwarteng, has announced the start of a new era in which the UK economy must grow by 2.5% of Gross Domestic Product each year. His “new approach for a new era” will be based on three pillars: reforms to increase supply, fiscal responsibility and tax reduction.
Among the measures presented in his ‘mini-budget’, are included the cancellation of increases in taxes for the public and companies, provided for by the Government of Boris Johnson, reductions in rates on the sale of homes, the obligation for unions to consult with their affiliated offers from the company to avoid strikes and a reduction from 20% to 19% of the tax rate on income of up to 57,000 euros per year and from 45% to 40% above 170,000.
The sum of tax reductions, more than 50,000 million euros, is the largest by a British government for five decades. In 1972, the prime minister was Edward Heath, the economy was consumed by inflation and strikes, and the United Kingdom was preparing to join the then European Economic Community, because it felt, and was perceived, as “the sick man of Europe”. ».
The new prime minister, Liz Truss, wants a radical transformation of the economy based on growth – the United Kingdom has the lowest percentage increase in GDP among the G7 countries –, betting on a reduction in the role of the State. She has however set a numerical target for growth, to be pursued by both the Government and the independent Bank of England.
bearish markets
It will also promote the creation of “investment zones”, forty have already been indicated, which would benefit from tax incentives. The previous finance minister, Rishi Sunak, had launched the creation of a dozen free zones in British ports. Tourists visiting the UK will no longer have to pay VAT. And the limits to the bonuses that banks can receive, imposed in the EU, are eliminated.
Rachel Reeves, head of the Treasury portfolio in the Labor opposition, has caricatured Kwarteng’s plan as “a budget without figures, a menu without prices”. She presented the rectification of the Truss Government as an implicit criticism of the Conservative governments of the last twelve years. For the Labor party, now Boris Johnson’s ‘levelling up’ (equalization between regions) is moving to the ‘trickle down’ economy, favoring the rich so that their spending reaches the poorest.
The reaction of the capital markets was negative for the price of shares, government bonds and the price of the pound. The concern is that inflation rises and that indebtedness increases when interest rates rise. Kwarteng estimates that the cost of freezing energy prices will already be around 70 billion euros in the next six months.
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