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Britain’s new government on Friday unveiled a multi-billion pound program to support households and businesses hit by the highest inflation in decades, cutting taxes as the country heads into recession.

Finance Minister Kwasi Kwarteng, freshly appointed by new Prime Minister Liz Truss, said capping rising energy bills would cost £60bn ($68bn) in the first six months.

The costly plan aims to boost economic growth – but the pound has slumped to its lowest level against the dollar since 1985 as traders worried about its impact on public finances.

“The Prime Minister has moved with great speed to announce one of the most significant interventions the British state has ever made,” Kwarteng told parliament in a so-called mini budget.

“People need to know that help is coming.”

In a controversial move as millions of Britons face a cost of living crisis, Kwarteng removed a legacy EU cap on bankers’ bonuses after Brexit to bolster the financial services sector.

He outlined a plan to cut the lowest income tax rate and cut the highest rate to 40% from 45.

The Chancellor of the Exchequer also canceled a planned increase in corporate income tax approved by Truss’ predecessor Boris Johnson.

He announced on Thursday that he would scrap a payroll tax, reversing a 1.25 percentage point increase in National Insurance put in place by his predecessor Rishi Sunak.

It comes as economists have warned Britain is likely already in recession, with soaring fuel and food prices taking their toll.

Opposition politicians criticized the budget for rewarding the wealthy.

“The Chancellor has made it clear what his priorities are today – not a growth plan, a plan to reward the already wealthy,” said Rachel Reeves, finance spokeswoman for the main opposition Labor party.

Pound collapse

In a worrying sign, the pound fell to $1.0897 – the lowest level since 1985 – and the London stock market fell more than 2% as recession fears mounted.

“Sterling is in the firing line. There is a creeping feeling that the additional government borrowing that is underway will weigh heavily on the UK economy,” said IG analyst David Madden.

Kwarteng also lifted the point at which the tax is levied on residential property purchases as soaring interest rates dampen the housing market.

Britain will meanwhile reintroduce VAT refunds to tourists, a scheme that was previously scrapped after Brexit.

Kwarteng released his plan a day after the Bank of England suggested the country was slipping into recession as it raised interest rates again to tame searing inflation.

With prices soaring, Britain on Wednesday announced a six-month plan to pay around half of businesses’ energy bills.

Truss had already initiated a two-year home energy price freeze. However, the caps will not come into force until Britons face another big rise in gas and electricity bills from October.

The average household will see their annual energy bill capped at £2,500 until 2024, but many will have to spend more than that to keep homes warm through winter.

Wholesale electricity and gas prices for businesses – as well as charities, hospitals and schools – will also be capped.

Yet British energy companies including BP and Shell will not get the cap as their profits surged after Russia’s war in Ukraine pushed up oil and gas prices.

Labor has demanded the government extend a windfall tax on the energy sector launched by Sunak earlier this year.

But Truss ruled it out, arguing that additional taxes are hampering economic recovery and efforts by energy groups to transform into greener companies.

She took office on September 6, two days before the d*ath of Queen Elizabeth II, after winning an election of Conservative Party members on a platform of tax cuts.

“Unacceptable strikes”

Kwarteng on Friday confirmed plans to overhaul the welfare system.

Some 120,000 people working part-time would face a reduction in their benefits if they did not take further steps to seek more employment.

The cost of living crisis has sparked some of the biggest strikes in more than 30 years, involving sectors ranging from the rail industry to postal services and even lawyers.

Kwarteng told MPs the government would legislate ‘to ensure that strikes can only be called once negotiations have genuinely failed’.

(AFP)

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