Tax cuts and measures to stimulate the economy are to be presented in a mini-budget on Friday.
The UK is facing a cost of living crisis and the prospect of a recession.
What could be in the mini budget?
- Let people keep more of their income by cutting National Insurance (NI).
- Abolition of a planned increase in the tax that companies pay on their profits
- possible reductions in other taxes, including stamp duty, paid on home purchases
- Removal of the upper limit for banker bonuses
- Tightening of universal credit rules
- plans to boost economic growth, such as establishing low-tax zones in the UK
The announcements are being made by the new Chancellor, Kwasi Kwarteng, who is in charge of public finances.
The tax cut plans under consideration could cost at least £30bn.
What changes can be expected in social security?
NI was due to return to its old rate from April 2023 – to be replaced by a new 1.25% health and welfare levy. The levy will not be introduced now.
The NHS will continue to receive the funding it promised, but the Government is now expected to borrow the money rather than collect it from taxes.
High earners will benefit the most as they pay the most NI. An NI cut doesn’t help retirees or those on low incomes or benefits because they don’t pay the taxes.
What other announcements are expected?
This tax is based on the annual profit that a company generates.
Ms. Truss will cancel the climb, however.
These fees fund programs like insulation and renewable energy.
The Prime Minister has promised to temporarily scrap the levy, saving households around £150 each.
A possible reduction in the main income tax could also be considered.
Mr Kwarteng is expected to announce a restructuring of the welfare system to “get Britain running again”.
This includes Universal Credit, a benefit payment to people of working age.
How does the government intend to stimulate growth?
With the mini-budget, the upper limit for banker bonuses could also be abolished. This was rolled out across the EU in 2014 (when the UK was still a member) following the global financial crisis. Under current rules, a banker’s bonus cannot exceed his annual salary unless shareholders agree.
Asked if she would be happy if bankers got bigger bonuses, Ms Truss said she would like the economy to grow.
The government may also announce the creation of “special investment zones”. Certain locations could be allowed to relax planning rules and lower corporate taxes to encourage investment.
Can the UK afford to tax less and borrow more?
Critics, including Rishi Sunak, rival of Ms Truss’ Conservative leadership, argue immediate tax cuts would force the government to borrow more.
Ultimately, the taxpayer has to pay back the money plus interest.
However, Ms Truss argues that tax cuts will help the economy grow – and bring in more money that will cover the cost of the amount borrowed.
Why is it called mini budget?
Major tax and spending decisions are typically made twice a year — in a fall budget statement and in a spring statement.
The Office for Budget Responsibility (OBR) – which independently advises the government – usually publishes its own analysis of these statements. It sets out the cost of new policies, the size of the tax increase and the impact on the economy.
However, the government refuses to publish the OBR assessment together with the mini-budget.
The Treasury said it “stays[s] committed to maintaining the usual two forecasts this fiscal year as requested.”
A full budget is expected later this year, but no date has been set yet.
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