From November 6, the United Kingdom will reverse a payroll tax increase-Kwarteng
LONDON, Sept 22 (Reuters) - British finance minister Kwasi Kwarteng said on Thursday that a 1.25 percentage point hike in the payroll tax that went into effect earlier this year would be reversed beginning Nov. 6, putting a date on a previously promised action.
The statement comes ahead of a mini-budget being out on Friday, which is expected to include a slew of tax cuts as new Prime Minister Liz Truss executes an aggressive low-tax, pro-growth policy following her election as Conservative Party leader earlier this month.
"It has never worked to tax our way to prosperity. To increase living standards for all, we must be unafraid of expanding our economy "In a statement, Kwarteng stated.
"Reducing taxes is critical to this."
He also stated that the administration would abandon plans to split the National Insurance hike and call it the Health and Social Care Levy, which was set to take effect in April 2023.
The 1.25 percentage point rise applied to both employer and employee rates and was estimated to raise 13 billion pounds (14.65 billion) annually.
Kwarteng will also repeal a dividend tax rate rise implemented in tandem with the payroll tax hike in order to raise contributions from those paid through alternative channels, effective April 2023.
During her campaign to replace ex-leader Boris Johnson, Truss stated her aim to repeal the national insurance increase that was implemented to pay for a health system that was struggling to deal with backlogs created by the COVID-19 pandemic.
Truss and Kwarteng are counting on tax cuts to spur faster economic growth, offsetting rising interest payments on the country's national debt and massive spending on a program to help firms and households pay their energy bills.
Truss has promised to cancel a previously scheduled hike in company tax, and unconfirmed media sources suggest that the government may also announce a reduction in the tax paid on property purchases on Friday.
The measures come amid a severe squeeze on household budgets and a bleak economic outlook, as rising energy costs drive up inflation, declining real wages spark worker unrest, and rising interest rates force up mortgage payments.
On Thursday, the Bank of England hiked its key interest rate to 2.25% from 1.75%, saying it will continue to "react strongly, as necessary" to inflation, despite the fact that the economy is likely already in a slight recession.
The administration stated that the reforms will not result in a reduction in overall funding for health and social services. The additional funds required to make up for the gap generated by the repeal of the tax would be raised through general taxation, according to the Treasury.