The Growth Plan 2022 makes growth the government’s central economic mission, setting a target of reaching a 2.5 per cent trend rate. Sustainable growth will lead to higher wages, greater opportunities and provide sustainable funding for public services. The Growth Plan makes good the Government’s commitment to cut taxes for people and businesses. The Government will cut National Insurance contributions from November and cancel the Health and Social Care Levy, meaning 28 million workers will keep an extra £330 per year, with the cut taking effect from 6 November.
The Growth Plan also brings forward the planned cut to the basic rate of income tax to April 2023. This will see the basic rate on income tax cut to 19 per cent, giving 31 million people a tax cut worth an average of £170 per year. These tax cuts will ensure individuals keep more of what they earn, and make the UK a more attractive place to live and work.
This is in addition to the Government’s Energy Price Guarantee. The Guarantee will ensure that a typical household in Great Britain pays, on average, around £2,500 a year on their energy bill, for the next 2 years, from 1 October 2022. The consumer saving will be based on usage, but on average usage a household will save £1,000 a year (based on current prices from October).
Control over monetary policy, including decisions on interest rates to control inflation is the remit of the Bank of England. Since control of monetary policy was transferred from Government to the Bank of England 25 years ago, inflation has averaged precisely 2 per cent. It is right that the Bank of England is independent, and I know that the Governor and his team will take decisive action to get inflation back on target and ensure that inflation expectations remain firmly anchored.
The cap on Bankers’ bonuses will be removed by the Prudential Regulation Authority. This cap limits remuneration of certain bank staff to 100 per cent of their fixed pay (or 200 per cent with shareholder approval). The bonus cap only served to drive up non-performance-related pay, or drive activity outside Europe. Removing this will strengthen the incentive for financial institutions to create jobs here, invest here, and pay taxes here. Pay in bonuses aligns the incentives of individuals with those of the bank, in turn supporting growth in the UK economy.
It is clear that the abolition of the 45p Additional Rate of income tax had become a distraction from the Government's mission to tackle the challenges facing our country. The Government has listened, and will not be proceeding with the abolition of the Additional Rate.
On 23 November, the Chancellor will set out his Fiscal Plan in which he will set out further details on the government’s fiscal rules, including ensuring that debt falls as a share of GDP in the medium term. This will also be accompanied by a full forecast from the Office for Budget Responsibility.