Chancellor Kwasi Kwarteng has announced a tax-slashing 'mini-budget' comprising of £45 billion of cuts, and a huge welfare system shake-up.
He outlined his plans to MPs in the Commons in an emergency announcement on Friday, as Liz Truss' government set out its plan to tackle the rising cost of living and tame inflation.
Mr Kwarteng introduced a package of measures, including: stamp duty cuts, cancelling a planned corporation tax rise, and confirming help for households and businesses struggling with soaring energy bills.
A huge increase in government borrowing will fund the tax cuts for the plan, which Mr Kwarteng said would deliver higher wages, greater opportunities and fund public services.
But critics claim the government's approach reveals a misguided faith in "trickle-down economics" - the idea cutting taxes for the wealthy and for businesses will ultimately benefit all.
Labour's Shadow Chancellor Rachel Reeves told the Commons: “The only things that are going up are inflation, interest rates and banker bonuses.”
The Bank of England raised interest rates on Thursday to 2.25% from 1.75% - the highest rate-level since the 2008 financial crisis - with the Bank warning the UK may already be in a recession.
So, how will the changes affect you? Here are the eight main takeaways from the mini-budget.
The chancellor has cut the basic rate of income tax early, and abolished the additional rate altogether.
Mr Kwarteng announced the government would cut the basic rate of income tax to 19p in April 2023 – which is one year early.
He claimed 31 million people would take home £170 more per year, on average.
He also axed the additional rate of income tax, which is currently set at 45% for earners on salaries of more than £150,000.
Mr Kwarteng said the figure for those top-earners is higher than the headline top rate in other G7 countries.
The additional rate would be replaced by a single higher rate of income tax of 40%, he said.
Mr Kwarteng told MPs: "This will simplify the tax system and make Britain more competitive. It will reward enterprise and work. It will incentivise growth. It will benefit the whole economy and the whole country."
Mr Kwarteng said the government would also simplify IR35 rules, noting reforms to off-payroll working have added “unnecessary complexity and cost” for many businesses.
He said: “As promised by the prime minister, we will repeal the 2017 and 2021 reforms. Of course, we will continue to keep compliance closely under review.”
The chancellor also confirmed the government's plans to make cuts to stamp duty.
He told the Commons: “Home ownership is the most common route for people to own an asset, giving them a stake in the success of our economy and society."
Currently, buyers do not pay stamp duty on the first £125,000 of a property’s value.
The government is doubling that threshold to £250,000.
Mr Kwarteng also said the stamp duty threshold for first-time buyers would be increased from £300,000 to £425,000.
The government is also increasing the value of the property on which first-time buyers can claim relief from stamp duty, from £500,000 to £625,000.
Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, tells ITV News stamp duty cuts can actually push house prices up
Mr Kwarteng said these steps would mean an increase of 200,000 more home buyers annually who won't have to pay stamp duty.
Mr Kwarteng said the cut was permanent, and effective from today.
The chancellor also said the government had plans to liberalise planning laws, to kickstart homebuilding to address demand.
Mr Kwarteng said: “To increase housing supply and enable forthcoming planning reforms, we will also increase the disposal of surplus government land to build new homes. We are getting out of the way to get Britain building.”
What do the stamp duty cuts mean for first home-buyers?
According to the chancellor's statement to the Treasury, the standard buyer in England will save £2,500.
First time buyers will now pay no stamp duty up to £425,000, and will be able to save on stamp duty on higher-value homes.
The change increases the value of the property on which first time buyers can claim relief, from £500,000 to £625,000.
The stamp duty cut took effect from midnight today (Friday 23 Sept 2022).
The government says the typical family moving into a semi-detached property will save £2,500 on stamp duty and £1,150 on energy bills under its plans – and if they have a combined income of £50,000, around an additional £560 on tax - around £4,200 in total.
However, Ms Reeves criticised the move, saying it would not benefit first home-buyers struggling to get a foothold in the market.
The shadow chancellor told MPs: “These stamp duty changes have been tried before. Last time the government did it a third of the people who benefited were buying a second home, a third home or a buy-to-let property.
"Is that really the best use of taxpayers’ money when borrowing and debt are already so high?”
A stamp duty holiday introduced by former Chancellor Rishi Sunak during the pandemic came to an end last year.
Office for National Statistics (ONS) figures show average UK house price leapt by 15.5% annually in July, marking the biggest increase in 19 years.
Experts have warned stamp duty breaks won't help first-time buyers trying to secure mortgages amid rising interest rates.
Ahead of the widely expected stamp duty cuts, Sarah Coles, a senior personal finance analyst at Hargreaves Lansdown, said: “No buyer will ever complain about a tax cut, but if the government was to cut stamp duty it would mean ignoring the fact that the real brake on the property market is a severe shortage of supply.
“By ramping up prices at a time of rising mortgage rates, the end result will be higher monthly mortgage costs, which are going to be increasingly unaffordable."
National Insurance hike reversed
The chancellor had already announced on Thursday that the government will reverse the recent 1.25% increase in the National Insurance contribution rate from November 6.
Mr Kwarteng's predecessor Rishi Sunak announced the rise, which came into effect in April, to help fund the strapped health and social care system.
Speaking in the Commons today, the chancellor confirmed to MPs the health and social care levy introduced by Boris Johnson’s government would be axed.
The chancellor said this, and other planned rises in national insurance contributions, would be cancelled from “the earliest possible moment” - November 6.
Karl Handscomb, Senior Economist at the Resolution Foundation, said the policy will benefit the most vulnerable the least.
“While raising National Insurance was a flawed way to fund social care provision that would initially largely benefit non-National Insurance payers, cutting NICs is an equally flawed way to tackle Britain’s cost-of-living crisis that is hitting lower-income households the hardest," he said.
He said the poorest 10th of households will gain just £11.50 this year, while the top 10% on average will 60 times that amount.
"Twice as much of the permanent gains will go to the richest five per cent of households as the entire bottom half of the income distribution," he added.
Welfare system shake-up
More than 100,000 people in part-time work could face a benefit cut if they don't actively seek more work, the government announced earlier this week.
Claimants working up to 15 hours a week on the National Living Wage will be required to meet regularly with a work coach and to take “active steps” to increase earnings, the chancellor said.
If they fail to do so, their benefits could be reduced, under the new plans.
It will be an increase from the incoming 12-hour threshold for a more intensive work search regime and will take effect from January as part of the Universal Credit system.
Claimants aged over 50 will also get extra support from work coaches, while the newly unemployed will receive nine months of targeted sessions.
The Treasury believes that rising economic inactivity among the over-50s is contributing to a shortage in the jobs market, driving up inflation and limiting growth.
Kwasi Kwarteng did not confirm social security benefits will be fully uprated in the usual way in line with “this month’s inflation figure”.
He insisted the government will make announcements about that in “due course”.
Mr Kwarteng outlined the government's previously announced plans to tackle soaring energy bills, and announced the government would guarantee a safety net for energy firms.
He reiterated the government's plans to cut household energy bills by an expected £1,400 this year while millions of the most vulnerable households will receive additional payments, taking their total savings this year to £2,200.
He also reaffirmed the government's commitment to the £400 energy bills discount, with a series of instalments beginning in October.
The chancellor also outlined the government's plans to help businesses, which don't benefit from an energy price cap.
The government's Energy Bill Relief Scheme is set to reduce wholesale gas and electricity prices for all businesses, charities and public sector premises like schools and hospitals.
"This will provide a price guarantee equivalent to the one provided for households, for all businesses across the country," Mr Kwarteng told MPs.
He added that “energy prices are currently extremely volatile, erratically rising and falling every hour” - creating risks for energy firms.
The chancellor also outlined a relief plan for pubs and hospitality, by freezing alcohol duty for another year.
Mr Kwarteng also announced a £40 billion safety net for energy firms threatened by the rising cost of wholesale gas and electricity.
The chancellor announced a new Energy Markets Financing Scheme, to be delivered with the Bank of England, which will provide a "100% guarantee for commercial banks to offer emergency liquidity to energy firms.”
The UK has seen a wave of strikes by workers, including rail and postal staff, calling for better and pay and conditions across industries this year.
Mr Kwarteng said it is “simply unacceptable” for strike action to disrupt lives, telling MPs the government will seek to introduce minimum service levels.
He added: “We will legislate to require unions to put pay offers to a member vote to ensure strikes can only be called once negotiations have genuinely broken down.”
Corporation tax cut
The chancellor also confirmed the government was cancelling its planned corporation tax rise.
The UK’s corporate tax rate will not rise to 25% – it will remain at 19%.
Mr Kwarteng said the UK would have the lowest corporation tax in the G20, claiming that this would plough almost £19 billion a year back into the economy.
"That’s £19 billion for businesses to reinvest, create jobs, raise wages, or pay the dividends that support our pensions," he said.
Mr Kwarteng also announced plans for new low tax “investment zones”.
What is an 'investment zone?'
The government says it is in discussion with 38 local and mayoral combined authority areas in England including Tees Valley, South Yorkshire and West of England to set up the zones, according to a statement published by the Treasury.
Mr Kwarteng explained to MPs: "We will liberalise planning rules in specified agreed sites, releasing land and accelerating development.
“We will cut taxes. For businesses in designated tax sites, for 10 years, there will be accelerated tax reliefs for structures and buildings, and 100% tax relief on qualifying investments in plant and machinery.”
The government says these zones will be hubs for growth, "encouraging investment in new shopping centres, restaurants, apartments and offices, and creating thriving new communities."
Mr Kwarteng was heckled by opposition MPs and cheered on by his own side as he confirmed controversial plans to get rid of the cap on bankers’ bonuses.
He said the government wanted to invigorate the City of London, to drive growth in Britain's financial services sector by attracting.
Currently, bankers' bonuses are capped at double their salary - or triple, subject to shareholders' approval.
The government will lift that cap entirely, placing no limits on the size of bankers' bonuses.
Mr Kwarteng argued that the bonus cap had only driven up bankers' basic salaries.
He told the Commons: “A strong UK economy has always depended on a strong financial services sector.
"We need global banks to create jobs here, invest in London, and pay taxes in London, not Paris, not Frankfurt, not New York.
"All the bonus cap did was to push up the basic salaries of bankers, or drive activity outside Europe."
Mr Kwarteng also told the Commons he would set out an "ambitious package of regulatory reforms" later in the autumn.
How will all this be paid for?
Huge borrowing, according to ITV News political editor Robert Peston.
The government’s mini-budget is estimated to contain total tax cuts of £45 billion by 2026/27, according to figures published by the Treasury.
Government estimates also indicate that tax cuts in 2023/24 will be worth nearly £27 billion.
Financial research group, the Institute of Fiscal Studies (IFS), had earlier warned the plans could result in increasing UK debt.
It predicts UK borrowing could hit £100 billion a year.
IFS director Paul Johnson, an economist, said there was nothing 'mini' about the budget.
He wrote on Twitter: "Actually the biggest tax cutting budget in half a century. Extraordinary."
The Labour opposition has been calling for the government to introduce a windfall tax, to force energy firms to help pay for the government's energy bills relief package.
The party has told the government it is unfair to heap the debt on taxpayers' shoulders in the longterm.
Prime Minister Liz Truss has rejected calls for a windfall tax on energy companies' profits.
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