Kwasi Kwarteng Scraps Top Rate Of Income Tax In Major Fiscal Overhaul
Chancellor Kwasi Kwarteng has scrapped the top rate of income tax in today's fiscal statement (Alamy)
3 min read
Chancellor Kwasi Kwarteng has announced the top rate of income tax is being scrapped as part of a major overhaul of the UK's tax system.
In a surprise move during today’s much-anticipated fiscal event, Kwarteng said the 45 per cent rate of tax for those earning over £150,000 will be abolished and replaced with a 40 per cent tax rate. He claimed the move would help turbo-charge the economy and increase productivity.
The higher rate is only paid by the 629,000 people earning above the highest threshold in the UK. According to Treasury officials, the change will mean that the highest earners could see their tax cut by around £10,000-per-year.
Speaking in the Commons on Friday morning, Kwarteng said the 45 per cent rate was "currently higher than the headline top rate in G7 countries like the US and Italy, and it is even higher than social democracies like Norway".
He added: “So we are not going to cut the additional rate of tax today, I'm going to abolish it altogether. From April 2023 we will have a single higher rate of income tax of 40%.
“This will simplify the tax system and make Britain more competitive. It will reward enterprise and work. It will incentivise growth. It will benefit the whole economy and the whole country.
"And after all, this only returns us to the same top rate we had for 20 years - including the entire time the Opposition was last in power - bar one month."
The eye-catching measure was the centrepiece of a substantial overhaul of the UK's tax system promised by new prime minister Liz Truss.
Today's reforms also include slashing Stamp Duty rates and reversing the planned National Insurance Contribution rise.
Kwarteng also confirmed reports that the cap on bankers' bonuses will be scrapped, insisting that the measure had damaged the financial services sector and diverted spending from London to other major financial capitals including Paris and New York.
Elsewhere on income tax he brought forward a planned cut to the lower rate announced by Rishi Sunak when he was Chancellor earlier this year, saying it will see 31 million people keeping on average £170 more of their wages per year.
Kwarteng said: "I can announce today that we will cut the basic rate of income tax to 19p in April 2023 - one year early.
"That means a tax cut for over 31 million people in just a few months' time. This means we will have one of the most competitive and pro-growth income tax systems in the world."
In response Rachel Reeves, Labour's shadow Chancellor, said Kwarteng has "made clear who his priorities are today, not a plan for growth, a plan to reward the already wealthy".
She added: "A return to the trickle-down of the past, back to the future, not a brave new era."
Reeves told the Commons the mini-Budget was based on an outdated ideology that says "if we simply reward those who are already wealthy, the whole of society will benefit", adding: "As President Biden said this week, he is is sick and tired of trickle-down economics.
"And he is right to be. It is discrecredited, it is inadequate and it will not unleash the wave of investment that we need."
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