The Chancellor’s mini-Budget on Friday won’t be mini. A new report from the Institute for Fiscal Studies argues that the plans will lead to £100bn of borrowing a year, even once the Energy Price Guarantee has expired. Half of that is due to planned tax cuts. Despite the scale of the announcements, the government has refused to publish the Office for Budget Responsibility’s economic forecast, even though the analysis has been submitted to the Chancellor.
The government has gambled on growth. It’s even been bold enough to announce a target figure of 2.5 per cent a year. However, many of the planned tax cuts are merely a continuation of current policy or a reversion to where we were last year – the corporation tax rise is not even in force yet, and National Insurance only rose in July. The question, therefore, is how more of the same will bring about change. As the IFS writes: “there is absolutely no evidence that the sort of tax cuts being proposed could by themselves achieve anything like [an extra 0.7 per cent a year of growth]”.
With that in mind, it’s unsurprising that there are already doubts within the Conservative Party about the viability of the plans. One Conservative MP I spoke to yesterday thinks Liz Truss is in a “very weak position”, adding that “people are already concerned across the party that [the mini-Budget] won’t pay off”. Unlike Boris Johnson, the MP noted that Truss cannot (yet) rely on her credentials as an election winner to command loyalty across the parliamentary party, two thirds of which didn’t vote for her to be prime minister.
The announcements tomorrow will set the course for Truss’s first year in office. She’s recognised the need for swift action and will hope her decisiveness plays well with voters. The risk is that as the economy lumbers into a recession and interest rates and national debt soar, her gamble becomes a very expensive mistake.