AT LAST! A TRUE TORY BUDGET
Top 45p tax rate scrapped and penny off income tax Stamp duty slashed, rise in levies on beer & wine shelved New dash for growth in biggest boost for 50 years
KWASI Kwarteng launched a £45billion dash for growth yesterday with the biggest tax cuts in half a century.
Unveiling a package that stunned MPs and financial markets, the new Chancellor slashed income tax and stamp duty, as well as pressing ahead with cuts to national insurance and corporation tax.
He said tax cuts were ‘central to solving the riddle of growth’ and set a target for boosting GDP after years of ‘ stagnation’. Business chiefs welcomed the measures, with the CBI saying there was ‘no choice but to go for growth’.
Mr Kwarteng confirmed plans to reverse the increase in national insurance and halt a planned rise in corporation tax. But he also brought forward a planned 1p cut in income tax, taking the basic rate
to 19 per cent from next April. This will benefit around 31million workers.
In a surprise move, he also scrapped the 45p top rate of tax, handing an average £10,000 tax cut to the top 660,000 earners.
And he doubled the threshold at which stamp duty kicks in to £250,000, making a third of homes in England exempt from the tax altogether.
Treasury figures revealed that the measures will pay for themselves if they succeed in adding an extra 1 per cent a year to GDP. But financial analysts said it was a huge gamble that could fuel inflation and drive up interest rates to levels not seen in 20 years.
And financial markets took fright, with sterling sliding to its lowest level against the dollar since 1985. Last night £1 was worth just $1.09, down 3 per cent in a day. The price of government borrowing soared even higher, sparking fears of a further rise in interest rates.
But Mr Kwarteng rejected the criticism last night, saying: ‘I don’t think it’s a gamble at all. What was a gamble, in my view, was sticking to the course we were on – we had taxes at a 70-year high. What we had to do was have a reboot.’
The Growth Plan came as:
Mr Kwarteng revealed that freezing energy bills for millions of households and firms will cost the Treasury £10billion a month;
He abandoned a planned rise in duty on beer, wine and spirits;
The cap on bankers’ bonuses introduced in the wake of the financial crash was scrapped;
The Chancellor set a target of raising long-term growth rates to
2.5 per cent a year – against a current forecast of 1.75 per cent;
Ministers relaxed planning rules for onshore wind farms under deregulation that may cover childwilling care, immigration and farming;
n Mr Kwarteng unveiled plans to create dozens of low-tax, low-regulation ‘investment zones’;
n Allies of former chancellor Rishi Sunak said it was wrong to offer tax cuts to the rich during a cost of living crisis;
n Treasury chief secretary Chris Philp faced mockery after he welcomed a brief spike in the value of the pound just before it crashed;
n Mr Kwarteng pledged new union laws to curb ‘unacceptable’ strikes affecting key services; n Tax-free shopping for overseas visitors was reintroduced in a bid to boost tourism; n Labour likened the PM and Chancellor to ‘two desperate gamblers, chasing a losing run’.
The Chancellor told MPs it was time to ‘turn this vicious cycle of stagnation into a virtuous cycle of growth’, adding: ‘We need a new approach for a new era, focused on growth.’
But some economists warned that the massive package of unfunded tax cuts could fuel already sky-high inflation.
Paul Johnson, director of the Institute for Fiscal Studies, said: ‘Mr Kwarteng has shown himself willing to gamble with fiscal sustainability in order to push through these huge tax cuts. He is to shrug off the risks of inflation, and to invite significantly higher interest rates. He is not just gambling on a new strategy, he is betting the house.’
The decision to scrap the 45p top tax rate and abolish the cap on bankers’ bonuses led to criticism that the measures would disproportionately benefit the rich.
But Mr Kwarteng insisted it was vital to focus on growing the size of the economy, adding: ‘For too long in this country we have indulged in a fight over redistribution.’
The National Institute of Economic and Social Research predicted the package would restore economic growth but could lead to the Bank of England base rate hitting 5 per cent next autumn.
The package of tax cuts was welcomed by many leading Tories. MP Richard Drax said it was ‘refreshing to hear some Conservative policies, at last’.
Former Tory treasurer Lord Ashcroft said: ‘Some will applaud, others will of course condemn, but after the mini-Budget today and other measures this week the UK seems after 12 years to have a Conservative government.’
CBI chief Tony Danker said last night: ‘Today is day one of a new UK growth approach.
‘We must now use this opportunity to make it count and bring growth to every corner of the UK. Fifteen years of anaemic growth cannot be repeated.’
But Tory ex-leader Lord Hague said there was a ‘considerable risk’ attached to ‘borrowing a lot of money at higher rates of interest’.
Former chief whip Julian Smith welcomed the ‘ many positive enterprise measures’ however added: ‘This huge tax cut for the very rich at a time of national crisis and real fear and anxiety among low-income workers and citizens is wrong.’
Mr Sunak’s campaign manager Mel Stride, chairman of the Commons Treasury committee, said the failure to commission forecasts from the Office for Budget Responsibility left a ‘vast void’ at the centre of the Budget, which made it hard to assess.
And Labour’s shadow chancellor, Rachel Reeves, said the Chancellor’s change of direction amounted to an ‘admission of 12 years of economic failure’ and would hand cash to the rich.
‘We must use this opportunity’
WE were promised a ‘fiscal event’. What we witnessed in the Commons yesterday felt more like a political earthquake. Welcome to Trussonomics, Tory in tooth and claw.
In addition to the well-trailed reversal of the national insurance hike and cancellation of planned increases in corporation tax came a cascade of cuts and liberalisations.
A penny off the basic rate of income tax and abolition of the 45p top level.
Creation of tax-friendly investment zones in struggling regions, planning reforms to accelerate dozens of major infrastructure projects. Swingeing cuts in stamp duty, especially aimed at first-time buyers, removal of the cap on bankers’ bonuses and even cheaper alcohol. It was heady stuff.
In total, this ‘ event’ delivered tax cuts worth £ 45billion – the biggest single reduction in 50 years – leaving more money in everyone’s pockets.
It was, said Chancellor Kwasi Kwarteng, ‘ a new approach for a new era’. An unabashed repudiation of the prevailing tax- and- spend orthodoxy that stifles aspiration and productivity.
For too long, he told the House, Britain had concentrated on redistributing wealth rather than creating it.
Who could forget David Cameron’s mantra about ‘ sharing the proceeds of growth’. A noble thought, but the problem comes when there’s no growth to share – as there hasn’t been for some time.
On a falling tide, all boats sink. Trussonomics is an ambitious strategy to turn the tide and raise them up.
It puts clear blue water between the Conservatives as the party of economic freedom and Labour as that of the overweening state.
Predictably, the Left headed straight to the barricades yesterday. Tax breaks for bankers, business and those earning above £150,000 showed the Tories were concerned only with serving the interests of the rich and powerful, they said.
As ever, they completely miss the point. These reforms are intended to affirm that making profits and earning good salaries for hard work are not sins, but positive virtues.
Few would die in a ditch to defend bankers’ bonuses but financial services contribute more than £75billion to general taxation, helping pay for hospitals, schools and other public services.
That’s because the City of London is the world’s greatest financial hub. To retain that position against stiff competition from New York and elsewhere, it must pay to recruit the best.
Similarly, abolishing the 45p income tax rate is a genuine incentive to work harder and should be of financial benefit to all. When the rate was originally cut from 50p to 45p in 2012, the tax take actually increased by £8billion. The same should happen again.
And even the class warriors must concede that the cut in basic rate helps the low-paid, and that the poorest in society received targeted help in the energy price package.
It’s true that Trussonomics is a gamble. But it is a calculated one.
The tax cuts and cost of living handouts together will cost more than £100billion. If the energy crisis rumbles on through next year and beyond, more may well be required. That money has to be borrowed and, of course, repaid. But by going all out for growth, it is hoped that economic expansion will cover the cost.
That is the gamble. We can’t yet know how well it will pay off. It requires the British people to play their part by increasing productivity in return for keeping more of their own money.
But doing nothing is not an option. The economy is stagnating and in desperate need of a kick- start. Liz Truss and her Chancellor have produced a radical and intellectually coherent plan to achieve that. There is every sign it can work.