Almost half of the total value of Chancellor Kwasi Kwarteng’s tax cuts will go the top 10 percent of earners, analysis has found as higher mortgages could wipe out tax savings for the lower paid.

According to the Institute for Public Policy Research (IPPR), the wealthiest 10 per cent of the population will receive 48 per cent of the gains from Mr Kwarteng’s tax cuts.

At the other end of the earnings scale, the IPPR found that the poorest 10 per cent of society will see less than 1 per cent of the financial benefit, with the poorer half of society sharing just 12 per cent of the tax savings.

According to a review of Mr Kwarteng’s “mini-Budget”, which cut taxes by the highest level in 50 years, advisory firm Blick Rothenberg said only the very wealthiest in society would be exempt from financial pain with 90 per cent of earners at risk of being poorer.

This is despite the axing of the 45 per cent tax rate for those paid more than £150,000 a year, a 1p in the pound cut to all income tax bands, and the reversal of the National Insurance rise implemented by former Chancellor Rishi Sunak less than six months ago.

Robert Salter, a partner at Blick Rothenberg, said: “For the wider population, it appears that any tax decreases that they might benefit from could be fully eaten up by the mortgage interest increases that have already been announced.

“In practice, further rises in the cost of mortgages will, therefore, only put additional pressure on household budgets for many people earning a ‘regular income’.”

The analysis shows that someone earning £30,000 would benefit from an additional £392.18 in their bank account each year from the tax cuts, but that this could be dwarfed by their mortgage payments if they are on a tracker or variable rate deal, or are seeking a new fixed rate home loan.

A £150,000 mortgage on a 3.75 per cent loan deal would cost an additional £771 a year.

Someone earning £50,000 a year will save £842.18 from Mr Kwarteng’s tax cuts, but if they have a £250,000 mortgage those savings could wiped out with an additional £1,188 annual repayment, and more if they can only secure a mortgage with a loan rate of more than 3.75 per cent.

However, an earner on £200,000 a year would benefit from a £5,220 increase in their take home pay.
Even with a mortgage of £600,000 they would pay just an additional £1,900 on their annual mortgage repayments, based on Thursday 0.5 point rise in interest rates.

Bank of England should meet next week to vote on emergency interest rate hike, claims Deutsche Bank

The Bank of England should call an emergency meeting to vote on a further rise in interest rates next week, according to Deutsche Bank (Photo: Kirsty Wigglesworth/AP)
The Bank of England should call an emergency meeting to vote on a further rise in interest rates next week, according to Deutsche Bank (Photo: Kirsty Wigglesworth/AP)

The Bank of England should make an emergency interest rate hike next week due to fears that the Government’s tax cuts could fuel inflation further, according to a leading banker.

According to Deutsche Bank, the effort to contain inflation and boost a plummeting pound should result in the gathering of the Bank of England’s Monetary Policy Committee (MPC) ahead of its next scheduled meeting on 3 November.

Just a day after the Bank raised interest rates by 0.5 points to 2.25 per cent, George Saravelos, Deutsche Bank ’s head of global foreign exchange research, said that a “large, inter-meeting rate hike from the Bank of England as soon as next week” is needed to “regain credibility with the market”.

He added this would be a strong signal by the Bank of England that it was willing to do “whatever it takes” to bring inflation down quickly.

Emergency central bank meetings are rare and are normally triggered by financial crises, or a pandemic, not a “fiscal event” that is designed to boost growth.

Earlier this week a former deputy governor of The Bank of England claimed the Government and the Bank are “pulling in different directions” over efforts to bring inflation under control and avoid a recession.

Sir John Gieve, who is also a former member of  the Bank’s MPC from 2006 to 2009, said that the Government’s efforts to grow the economy were working in opposition to the Bank’s attempts to tame inflation. 

He said: “The Bank of England is worried about inflation – which is at 10 per cent, but should be at 2 per cent – and it thinks that is because of energy prices and because demand in the economy is outstripping supply.

“They are trying to slow down the economy, while the rhetoric from the new government is that they want to speed it up by increasing borrowing. They are pulling in different directions.”

People living in the London and the South East of England will see substantially larger gains than those living in the rest of the country. Londoners will see double the income growth compared with households in Northern Ireland.

Henry Parkes, senior economist at IPPR, said: “This mini-Budget was a maxi-boost for the richest, and shows a government staggeringly out of touch with lower and middle earners. As the country grapples with a cost of living crisis, soaring energy bills and high levels of inflation, tax cuts for millionaires should not be the priority.

Worryingly, these cuts will also undermine the levelling up agenda. Families across Wales, Northern Ireland and the north of England will feel more left behind than ever. If the government really wants to help ordinary people, then they would be better off investing in what the economy actually needs – better health, education, and skills.”

Torsten Bell, chief executive of economic think-tank the Resolution Foundation, said that the “tax cuts will do little to boost the incomes of those on low and middle incomes” with “someone on an income of £1m will receive a tax cut worth £55,220 next year”.

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