In his first parliamentary statement as chancellor, Kwasi Kwarteng said the government was abandoning the planned tax hike, with corporation tax set to remain at 19% rather than increasing to 25%.
This tax cut was somewhat expected by economists ahead of the statement, as Prime Minister Liz Truss had voiced her disapproval with the proposed hike previously.
While declaring the Mini Budget, Kwarteng said this cut would give the UK the lowest rate of corporation tax in the G20 and plough almost £19bn a year back into the economy.
This was just one of the wave of tax measures and cuts being brought in as part of the newly launched Growth Plan 2022.
Addressing parliament, the chancellor said tax was “central to solving the riddle to growth”.
He said the tax system was not just about raising revenue for public services, but it “determines the incentives across out whole economy”.
“We believe that high taxes reduce incentives to work, they deter investment and they hinder enterprise,” he added.
Truss promised a review of the tax system as part of her Tory leadership campaign and Kwarteng said this tax cancellation was “taking that first step” to make tax more “dynamic” and “simple”.
In his speech, Kwarteng said that that interests of businesses and families or individuals were not separate: “In fact, it is businesses that employ most people in this country.”
According to him: “Every additional tax on business is ultimately passed through to families through higher prices, lower pay or lower returns on savings.”
Trevor Greetham, head of multi-asset at Royal London Asset Management, said the wave of tax cuts and spending plans announced were “breath-taking”.
Laura Foll, UK equities portfolio manager at Janus Henderson, said this will provide a “a boost to expected future earnings for many domestic UK businesses”.
“This earnings benefit will come at a welcome time when given the uncertainty of the economic backdrop there are ‘question marks’ about earnings capability in 2023 and beyond,” she added.
“Therefore this boost to expected earnings could well provide a ‘cushion’ for companies at a difficult time when costs are in many cases continuing to rise and the demand outlook is uncertain.”