The additional rate of income tax is currently 45 per cent on income over £150,000 and this will be scrapped completely from April 23, 2023.
This means there will be a single higher rate of income tax of 40 per cent.
Meanwhile the basic rate of income tax will fall from 20 per cent to 19 per cent on income between £12,571 and £50,270.
Kwateng told the House of Commons this morning the additional rate was higher than the top rate of tax in G7 countries like the USA and Italy, and higher than countries like Norway.
He said: "[Abolishing the additional rate of tax] 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."
Kwarteng added that the cut to the basic rate of income tax would mean a tax cut for 31mn people.
He said: "For too long in this country we have indulged in a fight over redistribution. Now we need to focus on growth, not just how we tax and spend.
"We won't apologise for managing the economy in a way that increases prosperity and living standards."
Kwarteng's predecessor as chancellor Rishi Sunak had pledged to cut the basic rate of income tax to 19 per cent in 2024 in his Spring Statement earlier this year.
But the changes announced this morning bring this into effect a year earlier.
Paul Johnson, director of the Insitute for Fiscal Studies, said the scale of tax cutting in today's mini-Budget meant it was the "biggest tax-cutting event since 1972" when chancellor Anthony Barber tried to encourage a "dash for growth" which instead led to rising inflation.
Johnson said: "That Budget is now known as the worst of modern times. Genuinely, I hope this one works very much better."
Steven Cameron, pensions director at Aegon, said: “The government’s decision to cut the basic rate of income tax from 20 per cent to 19 per cent from April 2023, a year earlier than planned, will mean millions can keep more of what they earn.
"However, income tax thresholds are currently frozen until 2026 and over time, wage increases mean people are paying tax on more of their income, and in some cases are being dragged into paying higher rate tax. This is a particular issue in the current climate as soaring inflation has accelerated wage increases.
“While this is a welcome boost to take-home pay, for many it will fail to compensate for frozen income tax thresholds. Unfreezing these would be a much more powerful lever to support lower and modest earning households. For anyone earning under £37,670, increasing the basic rate threshold by 10 per cent, around the current rate of inflation, would offer a greater income tax saving than cutting the rate of income tax from 20 per cent to 19 per cent.
“Aegon analysis shows that a 10 per cent increase in the current threshold for paying basic rate income tax would save people earning above £13,827 around £250 over a year in income tax. This is based on the basic rate of income tax of 20 per cent in England.
“Different income tax rates apply in Scotland, so individuals will have to wait to see if the Scottish government makes equivalent changes.”
damian.fantato@ft.com
