LONDON - British finance minister Kwasi Kwarteng said on Thursday a 1.25 percentage point increase in payroll tax that took effect earlier this year would be reversed from Nov. 6, setting out the timeline for a previously promised move.
The announcement preceded a mini budget due on Friday morning which is expected to set out a raft of tax cuts as new Prime Minister Liz Truss implements an aggressive low-tax, pro-growth strategy following her election as leader of the Conservative Party earlier this month.
"Taxing our way to prosperity has never worked. To raise living standards for all, we need to be unapologetic about growing our economy," Kwarteng said in a statement.
"Cutting tax is crucial to this."
He also said the government would cancel plans to separate out the National Insurance increase and rename it as the Health and Social Care Levy, due to come into force in April 2023.
The 1.25 percentage point increase had applied to the rates levied on both employers and their staff and had been expected to raise 13 billion pounds ($14.65 billion) per year.
Kwarteng will also scrap from April 2023 an increase to dividend tax rates which had been brought in alongside the payroll tax increase to raise contributions from those who are paid through different channels.
During the campaign to replace ex-leader Boris Johnson, Truss made clear her intention to reverse the national insurance rise that was introduced as a way to fund a health system struggling to cope with backlogs caused by the COVID-19 pandemic.
Truss and Kwarteng are banking on tax cuts to stimulate accelerated economic growth that offsets increasing interest payments on the country's national debt and huge spending on a package to help businesses and consumers pay their energy bills.
Truss has promised to scrap a previously planned increase in corporation tax and unconfirmed media reports said the government could on Friday also announce a cut to the tax paid on property purchases.
The measures come against the backdrop of a severe squeeze on household budgets and a troubled economic outlook as energy costs push inflation higher, falling real wages stir industrial unrest, and rising interest rates drive mortgage payments up.
The Bank of England raised its key interest rate to 2.25% from 1.75% on Thursday, and said it would continue to "respond forcefully, as necessary" to inflation, despite the economy probably already being in a shallow recession.
The government said overall funding for health and social care would not be cut as a result of the changes. The extra money needed to make up for the shortfall caused by cancelling the tax will come from general taxation, the Treasury said.
(Reporting by Muvija M, Writing by Kylie MacLellan; Editing by Kate Holton, William James and Mark Heinrich)