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UK Announces Biggest Tax Cuts Since 1970s, Sends Pound Lower Cryptocurrency News

LONDON – The UK government announced the biggest tax cuts since the early 1970s in a bold gamble to boost the UK’s inflation-plagued economy, causing the pound to plummet and government bond yields to rise.

In one of the biggest shifts in Britain’s economic policy in decades, Britain’s Chancellor of the Exchequer, Kwasi Kwarteng, said the government would cut payroll taxes, freeze corporate taxes, lift the cap on bankers’ bonuses and spend billions to subsidize energy bills over the next two years.

Mr Kwarteng, who was appointed by new Prime Minister Liz Truss after she took over from Boris Johnson, said Britain was stuck in a vicious circle where low growth led to less revenue, leading to rising taxes to pay for public services, which in turn hurt growth further.

“This cycle of stagnation has meant that the tax burden is expected to reach its highest level since the late 1940s,” said Mr. Kwarteng. “We are determined to break this cycle. We need a new approach for a new, growth-oriented era.”

However, the new measures raised concerns among investors about the sustainability of Britain’s finances. “This is the biggest tax cut event since 1972,” said Paul Johnson, director of the Institute for Fiscal Studies, an economic think tank.

The pound, already down nearly a fifth against the dollar this year, slipped another 1.5% to $1.110 on Friday, hitting a fresh 37-year low. Borrowing costs in the UK rose rapidly and yields on both short- and longer-dated government bonds shot up by more than a third of a point, a massive jump for bond market conditions. The 10-year UK government bond yielded 3.8%, outpacing its US counterpart for the first time in several years.

The big tax cuts are a sharp change in direction for a Conservative government that has long maintained its reputation for carefully managing the country’s finances and balancing the books. The package of subsidies and tax cuts – which will be largely funded by borrowing – will cost more than £150bn over the next few years, analysts say, making it a big game by Ms Truss to boost the economy. The Government said it would borrow an additional £72.4bn to fund the package.

Economists said the package reminded them of Reaganomics, the series of tax cuts, spending increases and deregulations introduced by the former US president in the 1980s that swelled US debt but also led to higher growth.

Authors: Max Colchester at max.colchester@wsj.com

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Source: Crypto News Deutsch

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