Little more than two weeks into his tenure as Chancellor of the Exchequer, Kwarsi Kwarteng has this morning unveiled the largest set of tax cutting measures seen in Britain since the Barber budget of 1972. This is something of which Mr Kwarteng, who holds a PhD in ecomomic history, will be acutely aware.
In what represents a significant change in both policy and political approach by the new Truss government, Kwarteng told the Commons, “For too long in this country we have indulged in a fight over redistribution, now we need to focus on growth, not just on how we tax and spend”.
Laying out his mini budget to MPs Kwarteng went a considerable way to anul the last two budgets introduced by the former Conservative Chancellor, Rishi Sunak. This included:
- The cancellation of the 1.25% rise in National Insurance contributions for employees and employers.
- The cancellation of the planned increase of corporation tax from 19% to 25%.
- The scrapping of the planned duty rise on beer wine and spirits.
Going further than simply reversing Rishi Sunak’s proposed tax rises, Mr Kwarteng then introduced a whole range of further tax cuts including:
- A cut to the basic rate of income tax to 19%, now brought forward to April 2023.
- A cut to stamp duty, with the limit raised to £250,000, with a higher limit of £425,000 for first time buyers.
- The abolition of the top ‘additional’ rate of income tax that sits at 45%.
As a consequence of today’s mini statement, the Truss administration has embarked on a course where it is prepared to tolerate increased near term government borrowing on the premise that the associated tax incentives will stimulate medium term economic growth.
Kwartengs’ statement is arguably the most ideological financial announcement in recent memory, and lays down a significant divide in Briitsh politics, one which in all likelihood will now endure through the next general election and indeed beyond.
Alongside his planned tax cuts, the Chancellor laid out details of a number of associated reforms that the government is planning to introduce so to stimulate enterprise. These included plans for the reform the planning system, for the tightening of restrictions around the way in which strike action is called, for regulatory reform in the City of London including the end of curbs on bankers bonuses, and the creation of a range of new enterprise zones.
As the Bank of England yesterday projected UK growth would fall by 0.1% between July and September 2022, Mr Kwarteng laid out a medium term UK growth target of 2.5%.
Mr Kwarteng’s approach was immediately criticized by the Shadow Chancellor, Rachel Reeves, who highlighted how there was now a clear ‘battle of ideas’ as well as a battle of policies in British politics.
Pointing to the failure of the government to publish full forecasts on the impact of its plans, Reeves told the Commons that Kwarteng’s announcement was ‘a menu without prices’.
Conitnuing Reeves said, “It is unprecedented to have a fiscal announcement of this scale with no independent forecasts from the Office of Budget Responsibility. Never has a government borrowed so much and explained so little”.
With this morning’s so called ‘mini budget’ viewed as very much a ‘major event’, Mr Kwarteng’s approach has already generated an incredible diversity of reaction.
John O’Connell, chief executive of the TaxPayers’ Alliance, “Taxpayers will be delighted with a budget that eases the burden on their bottom lines and promises a growth game-changer.
Mark Swift, the Chief Executive of Make UK said, “Industry will welcome today’s statement which, coming on the back of the support for energy, contains a number of positive measures to help shield viable companies from the worst impact of escalating costs and help protect jobs. The focus on prioritising growth with plans to speed up planning reforms, boost infrastructure and investment is especially welcome”.
In constrast, Gary Smith, the General Secretary of the GMB Union, said, “Our members want an economic policy that works for all, not just the spivs and speculators who have done very well out of a Tory Government”
Rebecca McDonald, Chief Economist at the Joseph Rowntree Foundation said: “The Government should have combined its decision to put money into the pockets of high earners with a decision to uprate benefits early. As it is, those on the lowest incomes will have run out of options this winter – forced to cut back on food and energy, go into debt and into arrears. The Government may have an economic theory, but today it has proven it has no understanding of the economic reality facing millions across the UK.”
The Head of Policy at Friends of the Earth, Mark Childs said, “The Chancellor is treating economic growth and environmental protection as mutually exclusive, but they’re not. It’s this tired thinking that is driving the energy, climate and ecological crises we’re facing. We really needed this budget to ease the cost of living emergency, restore nature and cut the emissions that cause climate change, but it totally fails on all counts”.
