Liz Truss eyes tax rate changes

In part a response to the cost-of-living and energy bill crisis, the mini-budget will also underline the pair's focus on raising economic growth to 2.5 per cent, through potentially unpopular measures.

Ms Truss had already pledged to abandon next year's planned rise in corporation tax from 19 to 25%, and reverse April 1.25% rise in National Insurance contributions.

But last week it emerged Mr Kwarteng wanted to end the EU-set cap limiting bankers' bonuses to twice their salary, in order to draw more firms to the City of London.

The move has been denounced by Labour and trade unions, with some Tory MPs also worried it could prove politically toxic as families struggle` this winter.

It was reported yesterday the Chancellor is also considering cutting personal taxes for people working in new "investment zones".

Those who live and work in the low-tax areas could see their own contributions cut, with the burden also lightened for firms, although no decisions have yet been made.

Dubbed "full fat freeports", the zones were a key part of Ms Truss's leadership pitch, and are intended to boost jobs by cutting business rates, planning and other rules.

The Sun On Sunday yesterday reported the new PM is also now weighing up whether personal taxes could be cut as part of the package.

The Sunday Times reported Mr Kwarteng could announce as many as 12 of the zones on Friday, although it made no mention of tax cuts for individuals.

Ministers are also said to have discussed whether environmental protections could be watered down in these areas to clear the way for new developments.

The Government is reportedly looking at the West Midlands, Thames Estuary, Tees Valley, West Yorkshire and Norfolk as sites.

Scotland is already getting two green freeports, but the investment zone plan goes further.

Any lowering of income tax rates south of the Border has implications for Scotland, where the tax is largely devolved, leaving Scottish ministers a choice of whether to follow suit.

As present, the majority of Scottish income taxpayers (54%) pay less than their counterparts south of the Border, although the advantage is at most £22 a year.

All those earning above £27,800 in Scotland pay more, with those earning above £50,000 paying around £1,500 more per year.

The respected economic think- tank the Fraser of Allander Institute recently calculated that if the basic rate of income tax in England and Wales was lowered from 20p to 19p, and Scottish ministers did nothing, no Scots would pay less than their peers south of the Border.

Those Scots earning less than £15,000 would pay the same, but all others would pay more.

The Daily Telegraph recently reported Ms Truss also wants to raise the higher rate threshold for income tax in England and Wales to £80,000 from £50,720, something Boris Johnson pledged in 2019.

If that were to happen, and Scotland's rates stayed unchanged, it would costs Scots earning over £80,000 an extra £6,000 a year relative to those south of the border.

Deputy First Minister John Swinney has said he will run an emergency review of his own in the two weeks after the fiscal event mini-budget to see if he will have to cute more from Holyrood's budget for the current year, 2022/23.

He has already cut more than £500 million from previous plans in light of rampant inflation and related public sector pay rises.

The Chancellor's plans could be dealt a blow on the eve of his statement by the Bank of England.

Markets expect its Monetary Policy Committee (MPC) to raise interest rates by 0.75 points to 2.5% on Thursday, which would be the highest rate since December 2008.

It would also be the highest single increase to interest rates since 1989.

Besides inflation, the Bank - and ministers - are increasingly worried about the weakness of the pound, which fell to US$1.13 on Friday, its lowest level since 1985.

It indicates a lack of market confidence in the UK economy and government strategy, and could mean a surge in borrowing costs.