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ALEX BRUMMER: Kwasi takes the fast lane for UK growth

Prime Minister Liz Truss and Foreign Minister Kwasi Kwarteng (pictured) are portrayed by some economists as fanatics determined to bankrupt Britain and favor well-off corporate interests.

Kwasi hits the fast lane: Chancellor aims to free up business and unleash UK growth, says ALEX BRUMMER

Stiletto heels have already been sharpened ahead of this week’s fiscal event.

Prime Minister Liz Truss and her chancellor, Kwasi Kwarteng, are portrayed by some leading economists as fanatics determined to tear Britain apart and favor the corporate interests of the rich over the poor.

But the fiscal event, or mini-budget, will be different. It will be a bold attempt to withdraw from Treasury orthodoxy that has pushed taxes, as a percentage of national output, to their highest level since the late 1940s. It will also seek to free the financial sector from the shackles of Europe.

The likely lifting of the bonus cap for bankers is part of a broader agenda that seeks to boost investment opportunities for London-based insurers, pension funds and other asset managers.

The decision follows Kwarteng’s dialogue with city financiers. It also seeks to maintain the UK’s status as a leader in professional services.

No one can pretend that the abrupt change of course does not take place in a difficult economic context. Inflation is a global problem.

This week, both the US Federal Reserve and the Bank of England will hit higher prices and consumer spending with interest rate hikes.

The debate at the Bank is likely to focus on whether an extra half percentage point above 2.25 percent is appropriate or whether three-quarters of a point is bolder.

Hawks at the Bank may well see the need to offset the bold steps of the Truss government.

As for spending, it has announced a large energy subsidy for each home for two years with a limit on bills of £2,500.

The underprivileged have already received aid under Rishi Sunak’s £15bn May package.

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The pandemic and raging inflation have changed the way finance ministers now work. Instead of once or twice a year, ‘fiscal events’ now occur every few months.

Decisive action will be taken on the Kwarteng mini-budget this Friday. The proposed increase in corporate tax for next year, from 19% to 26%, will be scrapped.

This will no doubt be presented as a giveaway to overly rich companies. Hopefully, it will encourage recipients to invest more in teams and colleagues.

When justified by productivity gains, the workforce should be rewarded with the same generosity as in boardrooms.

Another big fiscal change promised is a reversal of the 1.25 per cent national insurance increase for the NHS and social care. The move was originally intended to raise around £12bn a year.

Sunak began to reverse it earlier this year when it removed the burden from those in lower tax brackets. The idea of ​​bringing forward Sunak’s promised 1p income tax to 2024 was also floated.

Kwarteng’s hope is that by freeing up business and spending, UK growth can be unleashed. And there may well be offers of regional tax zones.

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Progress may suffer due to a credit crunch and a forecast global slowdown or recession.

The UK lives on international trade and cannot escape a recession. But to make matters worse, by slamming tax breaks, would be foolish.

Truss and company are just following the kind of policies pioneered by Margaret Thatcher and emulated by Gordon Brown, who recognized the need to unleash the company.

It’s a gamble, in an era of high borrowing and indebtedness. But the UK, with a lower debt-to-GDP ratio than many competitors (including the US, Japan, Italy and France), has fiscal flexibility to try something different.

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