Chancellor Kwasi Kwarteng has put an end to the top rate of income tax for the highest earners as he spent tens of billions of pounds in a “gamble” to increase growth during the cost-of-living crisis.

In a mini-budget the cap on bankers’ bonuses is being scrapped and restrictions to the welfare system are being added, he argued tax cuts are “central to solving the riddle of growth”.

The raft of cuts, including Liz Truss’s promises to reverse the national insurance rise and axe the hike to corporation tax, are estimated by Treasury as costing nearly £45 billion a year in 2026.

From April those getting more than £150,000 a year (629,000) will stop paying the top income tax rate of 45% and instead switch to paying the 40% applicable to those on over £50,271.

Isle of Wight County Press: Chancellor of the Exchequer Kwasi Kwarteng delivers his mini-budget in the House of Commons (PA)Chancellor of the Exchequer Kwasi Kwarteng delivers his mini-budget in the House of Commons (PA) (Image: PA)

The planned cut to the basic rate of income tax to 19p in the pound a year has been brought forward to April.

Mr Kwarteng also revealed his estimate that the two-year energy bills bailout will cost around £60 billion over the first six months from October.

The major spending package also included:

  • A cut to stamp duty, meaning 200,000 less people will pay the tax on house purchases.
  • The introduction of VAT-free shopping for overseas visitors.
  • Legislation to force trade unions to put pay offers to a member vote so strikes can only be called once negotiations have fully broken down.
  • Confirmation of plans to make around 120,000 more people on Universal Credit take active steps to seek more and better paid work, or face having their benefits reduced.

The news of the package enacting Liz Truss’s tax-cutting promises, including reversing the national insurance rise and axing the hike to corporation tax, came a day after the Bank of England warned the UK might already be in a recession.

The Bank also lifted interest rates to the highest level for 14 years – 2.25%.

Mr Kwarteng said his economic vision would “turn the vicious cycle of stagnation into a virtuous cycle of growth”.

However Rachel Reeves, shadow chancellor, said the strategy amounts to an “admission of 12 years of economic failure” under successive Conservative governments.

The Labour MP described the Prime Minister and Mr Kwarteng as “two desperate gamblers in a casino chasing a losing run”.