Liz Truss will announce radical plans to cut stamp duty in the government’s mini-budget this week in an attempt to drive economic growth.
The prime minister and Kwasi Kwarteng, the chancellor, have been working on the plans for more than a month and will announce them on Friday.
Truss believes that cutting stamp duty will encourage economic growth by allowing more people to move and enabling first-time buyers to get on the property ladder.
Two Whitehall sources said that cuts to stamp duty were the “rabbit” in the mini-budget, which the government is billing as a “growth plan”. The fiscal statement will also include plans to reverse the national insurance rise and freeze corporation tax, two measures that will cost £30 billion a year between them.
Truss is also considering bringing forward plans to cut income tax by 1p in the pound from 2024 to next year, although this is likely to be reserved for a full budget before the end of the year.
During a trip to New York for the UN general assembly, she made clear that she wanted to go further in cutting taxes. She told TalkTV: “I’ve been very clear that as well as keeping taxes low, we need to put in place measures that are going to drive growth in the economy. And that’s my priority — we’ve had relatively low growth for several decades.”
She also indicated that there would be a wider review of the tax system. “We do have to take difficult decisions to get our economy right,” she told the BBC. “We have to look at our tax rates.”
Under the present system no stamp duty is paid on the first £125,000 of any property purchase. Between £125,001 and £250,000 stamp duty is levied at 2 per cent, £250,001 and £925,000 5 per cent, £925,001 and £1.5 million 10 per cent and anything above £1.5 million 12 per cent. For first-time buyers the threshold at which stamp duty is paid is £300,000.
During the pandemic the stamp duty threshold was increased temporarily to £500,000 to help to stimulate the property market. Truss has previously said that cutting stamp duty is “critical” to economic growth. As chief secretary to the Treasury she said that the highest rate of stamp duty, which was introduced by George Osborne, was “clogging up” the housing market and leading to fewer transactions.
Although successive Tory chancellors have cut stamp duty at lower levels, it is a big source of income for the government, raising about £12 billion a year.
Truss said that she was willing to be unpopular if it meant boosting growth by pushing forward policies such as lifting the ban on bankers’ bonuses and ending the moratorium on fracking for shale gas.
She admitted that her tax plans would initially benefit those who are better off. The Institute for Fiscal Studies has said that the poorest three million households in Britain would be as little as 63p a month better off under plans to cut national insurance.
Truss said, however, that by boosting growth the whole country would prosper. “I don’t accept this argument that cutting taxes is somehow unfair,” she said.
“What we know is people on higher incomes generally pay more tax so when you reduce taxes there is often a disproportionate benefit because those people are paying more taxes in the first place. We should be setting our tax policy on the basis of what is going to help our country become successful. What is going to deliver that economy that benefits everybody in our country. What I don’t accept is the idea that tax cuts for business don’t help people in general.”
Asked directly if she was prepared to be unpopular, she replied: “Yes, yes I am. What is important to me is that we grow the British economy because that’s what will ultimately deliver higher wages, more investment in towns and cities across the country, that is what will ultimately deliver more money into people’s pockets, and it will also enable us to fund the services like the National Health Service.”
Her approach indicated a difference of opinion with President Biden, who criticised the idea yesterday that tax cuts for the better-off would benefit wider society. He and Truss will meet today.
Biden said on Twitter: “I am sick and tired of trickle-down economics. It has never worked. We’re building an economy from the bottom out and middle up.”
Although the comments were undoubtedly aimed at domestic critics of Biden’s multitrillion-dollar stimulus plans, the comments highlight the ideological chasm between Biden and Truss. The prime minister’s official spokesman said: “Any suggestion that it’s in some way a direct criticism of UK policy would be ludicrous. No two countries’ economies are structured in the same way, each have unique challenges.”
In her speech to the United Nations general assembly tonight, Truss will link her tax cuts to the Britain’s commitment to freedom around the world. “The commitment to hope and progress must begin at home — in the lives of every citizen that we serve,” she is expected to say. “We want people to keep more of the money they earn, because we believe that freedom trumps instruction. We are reforming our economy to get Britain moving forward once again. The free world needs this economic strength and resilience to push back against authoritarian aggression and win this new era of strategic competition.”