The UKs Not-So-Mini Budget Slashes Tax

Image source: Milosz Maslanka Shutterstock

What's going on?

The UKs mini-budget laid out plans to kick-start the economy on Friday including some whopper tax cuts.

What does this mean?

The UKs got problems aplenty right now, and it looks like the governments settled on a solution: cutting taxes left, right, and center. Fridays mini-budget slashed taxes to the tune of 45 billion ($49.7 billion) in the biggest set of cuts in 50 years (tweet this). The new measures lower the basic tax rate from 20% to 19%, and outright abolish the top rate of 45%. The cap on banker bonuses has also been scrapped meaning that now might be a good time to invest in vintage champagne. Along with these moves comes the decision to lift the ban on shale fracking: environmentalists are not likely to be pleased but tough times call for bold plans, and this plan is nothing if not that.

Why should I care?

Zooming out: Markets vote of no confidence.
After digesting the mini-budget with a nervous gulp, the FTSE 100 the UK’s key stock market index dropped nearly 2%. But the real drama was in the currency market, where the pound plunged to a 37-year low in the wake of the news. Weakening currencies can suggest a governments losing credibility, and credibilitys important when youre planning to borrow money (as the UK is right now). So, although the government is counting on debt-financed tax cuts to nitro-boost growth, a full 2% drop in the pound versus the dollar suggests investors are far from convinced.

The bigger picture: The great British see saw.
The Bank of England (BoE)s latest statement declared war on inflation so it’s likely to have some strong opinions on the governments latest plan. See, cutting tax to stimulate growth makes sense when the economys sluggish but when inflations already running hot, it risks adding fuel to the fire. This looks like a tug of war between the BoE and the government and its anyones game right now.

Originally posted as part of the Finimize daily email.

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