UK government dishes out extensive tax cuts as country braces for recession

U.K. Chancellor Kwasi Kwarteng outside 10 Downing Street. Britain will cap the cost of electricity and gas for businesses.

The new U.K. government announced a program of tax cuts and investment incentives to boost the country's faltering economic growth.

Finance Minister Kwarteng told the House of Commons that the government wanted a new approach for a new era focused on growth.

Kwarteng said they believe high taxes reduce incentives to work.

The measures have been put in place.

• Cancellation of a planned rise in corporation tax to 25%, keeping it at 19%, the lowest rate in the G-20.
• A reversal in the recent 1.25% rise in National Insurance contributions, a tax on income.
• A reduction in the basic rate of income tax from 20p to 19p.
• Scrapping of the 45% tax paid on incomes over £150,000, taking the top rate to 40%.
• Significant cuts to stamp duty, a tax paid on home purchases.
• A network of "investment zones" around the country where businesses will be offered tax cuts, liberalized planning rules and a reduction in regulatory obstacles.
• A claim-back scheme for sales taxes paid by tourists.
• Scrapping of an increase in tax rates on various alcohols.
• Scrapping of a cap on bankers' bonuses.

The Bank of England said the U.K. economy was likely to have fallen into a recession in the third quarter. The economy contracted in the second quarter.

Friday's package is not being described by the government as an official budget as it has not been accompanied by economic forecasts from the Office for Budget Responsibility.

The U.K. will take on high levels of debt at a time of rising rates because of the combination of extensive tax cuts and the government's plan to shield households and businesses from soaring energy prices, according to critics. Over the course of two years, the package is expected to cost more than 100 billion dollars.

The U.K. government borrowed more than expected in August due to a rise in government spending.

The U.K. has the second lowest debt to GDP ratio in the G-7, and will announce a plan to reduce debt as a percentage of GDP in the medium term.

He said price caps would reduce peak inflation by 5 percentage points and lower the cost of living. He also announced an energy markets financing scheme, in conjunction with the Bank of England, that will offer a 100% guarantee to commercial banks.

According to the Institute for Fiscal Studies, the reversal of the income tax rise and the cancellation of the corporation tax rise will result in a £30 billion reduction in taxation revenue. Setting plans underpinned by the idea that tax cuts will deliver a sustained boost to growth is a gamble.

The Labour party believes that the tax cuts will be funded by unsustainable borrowing.

The plans trickle-down economics was called out by Kwarteng's Labour in the Commons, as well as by the U.S. President, who said he was "sick and tired" of the policy and that it had never worked.

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