Kwarteng’s mini-Budget sets out biggest tax cuts in half a century

Good evening

A borrow and hope Budget on a scale not seen since 1972.

That was the verdict of economics editor Chris Giles on UK chancellor Kwasi Kwarteng’s debt-financed package of £45bn in tax cuts and other measures which aims to shift the country from a “vicious cycle of stagnation into a virtuous cycle of growth”. 

Although billed as a “mini-Budget” the chancellor’s statement was anything but. Headline measures included the scrapping of the 45p top rate of tax for earnings above £150,000 and a cut in the basic rate to 19p, alongside previously flagged moves such as lifting the cap on bankers’ bonuses and cutting stamp duty on property sales. The government yesterday confirmed it would reverse the recent rise in National Insurance contributions.

City of London institutions welcomed Kwarteng’s “love-bomb” of regulatory changes but reaction in financial markets was harsh. UK government bonds sold off sharply, with this week’s rise in long-term borrowing costs now one of the biggest on record. The pound fell to a 37-year low against the dollar, as investors took fright at the cost of the chancellor’s “radical economic gamble”.

The challenge facing Kwarteng was underlined by data ahead of his speech showing UK consumer confidence at its lowest since records began in 1974 and PMI survey data highlighting manufacturing and services activity at a 20-month low.

These were preceded by new Bank of England projections yesterday showing GDP falling 0.1 per cent in the third quarter, fuelling fears the economy was heading for recession, as it raised interest rates by 0.5 percentage points to 2.25 per cent — the highest level since the financial crisis in 2008.

Also unclear is how the measures will be welcomed by the public, which, according to new survey data yesterday, support increasing taxes and welfare spending, with strong support for redistribution to benefit the less well-off.

Chief economics commentator Martin Wolf is one of the sceptics, arguing that “the idea that further tax cuts and deregulation (such as lifting the cap on bankers’ bonuses) will transform this [economic] performance is a fantasy”.

Referring to Truss and Kwarteng’s “Britannia Unchained” paean to free markets of 10 years ago, Wolf says: “Britannia is not ‘unchained’. It is instead sailing in perilous waters. Can the new captain and first mate even see the rocks that lie ahead?”

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