Let’s all stop pretending and call today’s mini-Budget announcement like it is, shall we? It’s the £45bn mini-Budget for millionaires. Except that there really isn’t much mini about it – and to pay for it, chancellor Kwasi Kwarteng has nipped round the corner to the local cheque-cashing shop to take out the biggest payday loan in history.
Afterwards, he’s off to meet with the bankers and business tycoons he’s enriched by abolishing the 45p top tax rate and allowing them unlimited bonuses. They’ll be hightailing it off to the casino to roll the dice at the craps table and maybe play a little roulette while they’re at it.
I can imagine it now, can’t you? “Here boys, have some more money, then hand me the dice. If I roll snake eyes and the security guards put their hands on my shoulders, I’ll have the British people pony up. They’ll be there for the kicking while you put the Dom Perignon on ice, courtesy of your record-breaking bonuses! Remember, you promised not to switch your tax domicile and fly off to Monaco with your loot. Wait… you’re now telling me you didn’t?”
The energy price support the government has offered – at an estimated cost of £60bn, but perhaps more – might be flawed. It might be “middle-class welfare”, as the Institute for Economic Affairs put it. But Liz Truss and co had to respond. And it will serve as a one-off hit to the public finances, assuming wholesale prices fall. But the rest of it?
This is not just a “fiscal event” as has been advertised. It’s a fiscal asteroid strike. No wonder the Office for Budget Responsibility was denied a place in the Westminster bunker. Its staff will have been watching aghast. Some of it had been trailed, but the abolition of the 45p rate; a massive million and billionaires tax cut? That came out of the blue.
It wasn’t so much a rabbit out of the hat as it was a cobra – and one of those ruinously expensive multi-coloured “morphs” beloved by the reptile-keeping community, too.
While hugging the rich, and making them richer, the government is at the same time squeezing the poor, with 120,000 Universal Credit recipients threatened with cuts to their meagre benefits if they don’t take on more hours. These people, who’ll struggle to survive the winter, are presumably those “worst idlers in the world” Truss and Kwarteng identified in the now infamous Britannia Unchained, which they both put their name to.
One of the chief impediments to the growth Kwarteng and Truss say they want – and desperately need, to pay for the flood of cash they are pouring into the economy – is a lack of available workers.
Hitting poor people with a big stick isn’t the way to find them. Nor is squeezing their rights at work by bashing their unions. One of the more striking things about this “event” was how clearly it showed the low value this re-cast Tory government puts on working people. The contempt they have for them was all over the chancellor’s statement, which Truss watched, glowering, a little like the wicked queen from Snow White.
The other problem facing UK plc is its dismal level of business investment. This country has, for years, had both the lowest headline rate of corporation tax in the G7; but also the lowest level of business investment, a point forcefully made by Labour’s Rachel Reeves in response to the decision to reverse Rishi Sunak’s planned corporation tax rise.
The 40 special investment zones, with low, low rates for qualifying investments, are part of Kwarteng’s answer to that. And sure, if they encourage new money to come into the areas where they’re being set up, it will be welcome. Maybe you could even call it “levelling up”, words which seem to be disappearing from the government’s vocabulary.
But if it doesn’t, if it just serves to shift already planned investment from one part of the country to another, it will serve as yet another misfire.
Kwarteng and Truss did save some pennies for less wealthy Britons: reversing the national insurance rise as expected, bringing forward a 1p cut in the basic rate of tax to 2023 and slashing stamp duty on house sales.
The problem – and it is a political one, as well as an economic one – for this pair is that any benefits that accrue from these look set to be eaten up by higher interest rates (in the case of the former); and also higher house prices, which the latter will stimulate.
The Bank of England – whose independence was at least reaffirmed by Kwarteng – will have to respond to such an aggressively inflationary package. It fought shy of a 0.75 per cent rate rise at its most recent meeting, with the vote narrowly favouring a 0.5 point rise instead. But we shouldn’t kid ourselves.
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The chancellor may have turned some of the more dovish thinkers on the Monetary Policy Committee into hawks, however reluctantly, but much higher rates are on the way.
Kwarteng has just added to their peak, which may hit 5 per cent and go higher still. The millionaires will still be laughing. They can handle it. But what Kwarteng claims to be giving to the rest of us, the Bank will have to take away to fulfil its mandate and get inflation under control.
PS: That payday loan I mentioned? It comes via surging government borrowing costs. Of course, they’ll not get to wonga.com levels. But in relative terms, it will feel like that.
It will ultimately be all of us who’ll be paying the financial penalty for this reckless and irresponsible act of budgetary spread-betting when the piper comes brandishing a margin call; asking to be paid.