UK's tax policy slammed by analysts

LONDON — The United Kingdom's new government has outlined plans to cut taxes and boost spending to bolster the faltering economy, but the high-risk moves sparked concerns that increased public borrowing will worsen a cost of living crisis and sent the British pound on its biggest one-day drop in the past two and a half years.

Treasury chief Kwasi Kwarteng announced sweeping tax cuts that he said would boost economic growth and generate increased revenue without introducing corresponding spending reductions. He also said previously announced plans to cap soaring energy bills for homes and businesses would be financed through borrowing.

Kwarteng offered few details on the costs of the program or its impact on the government's own targets for reducing the deficit and borrowing. The British currency fell more than 3 percent to as low as $1.0899 in afternoon trading in London, from $1.1255 on Thursday.

Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, said investors are concerned the government lacks a "coherent policy" as the economy faces "immense inflationary pressures".

"I think Kwasi Kwarteng really set off fireworks with his budget, Streeter said. "It was much bigger and bolder than expected. But the real concern on financial markets is that these widespread tax cuts are unfunded, they're going to add to the government's debt burden."

Prime Minister Liz Truss, who took office less than three weeks ago, is racing to combat inflation at a nearly 40-year high of 9.9 percent and head off a prolonged recession.

The government's program offers immediate help for homes and businesses struggling with soaring energy costs, while betting that lower taxes and reduced red tape will spur economic growth and increase tax revenue in the coming years.

"We need a new approach for a new era, focused on growth," Kwarteng told lawmakers in the House of Commons.

The opposition Labour Party attacked the plan for favoring the interests of businesses over working people and failing to provide any figures on its impact on government fiscal targets.

"It is a budget without figures, a menu without prices," said Rachel Reeves, Labour's spokeswoman on Treasury issues. "What has the chancellor got to hide?"

The British economy has foundered for the past three months as Truss' Conservative Party staged an internal contest to replace Boris Johnson, who stepped down after a series of scandals.

The Bank of England on Thursday forecast that gross domestic product would shrink for a second consecutive quarter in the three months ending Sept 30, an informal definition of recession.

Since taking office, Truss announced plans to cap energy prices for both consumers and businesses that are expected to cost taxpayers more than 150 billion pounds ($162.8 billion).

Kwarteng said the government would cut the basic income tax rate to 19 percent next year from 20 percent. The top rate will drop to 40 percent from 45 percent.

Truss' overall program runs counter to the views of many Conservatives, who believe the government should not rack up huge debts that taxpayers will eventually have to pay.

Reeves criticized the government for expecting taxpayers to foot the bill, rather than increasing tax on the windfall profits of energy producers.

While Kwarteng denied that the government was gambling on a "dash for growth", many economists said it was taking a huge risk by allowing borrowing to balloon while the economy is weak and inflation is high.

Agencies Via Xinhua