Are you ready for the “great government giveaway”? My estate agent is. They emailed me in gleeful anticipation of the news that Kwasi Kwarteng may, in his Budget-in-all-but-name, reinstate interest rate relief for landlords and cut stamp duty. This is what Brexit was about, right? Giving tax cuts to landlords.
Today’s (23 September) fiscal statement will be a debt-fuelled, tax-cutting bonfire, with the benefits primarily accruing to the rich. Kwarteng believes the rich drive growth. To they who have, more shall be given. In that spirit, the Treasury has already confirmed that Rishi Sunak’s National Insurance levy – the source of so much conflict within the Tory party over the past year, and so much tortured discussion in the press – will be cut by Kwarteng from November. The poorest 10 per cent of households will gain all of £11 from this shift in 2022-23, according to the Resolution Foundation, while the richest 10 per cent will gain £682 on average. Many among them will not even notice that.
The long-expected policy changes, which will also include a scrapping of Sunak’s planned rise in corporation tax from 19 to 25 per cent, will not come cheap. The Institute for Fiscal Studies estimates Kwarteng’s plans will amount to the greatest percentage reduction in the UK’s tax take since 1988. But spending will not be cut to pay for these tax cuts. There will be no return to widespread austerity. Instead, Kwarteng and Truss will allow borrowing – the third part of the fiscal equation – to surge. Borrowing this year is expected to leap to around £100bn, up from the £30bn forecast in March.
March is when the Office for Budget Responsibility (OBR) last assessed the state of the economy and the government’s fiscal plans. It will not do so today, as Kwarteng has – perhaps cleverly, in a political sense – avoided an OBR costing of his plans (the OBR must, legally, be allowed to make a new assessment this autumn). This tactic will give Kwarteng greater control over the headlines: his narrative will not be undermined by the OBR’s cold analysis, as Sunak felt his announcements often were, to his reported fury.
But does “herein lie madness”? That is how Kwarteng himself put it in the New Statesman in 2008, writing of Labour’s bid to borrow their way out of a recession. Kwarteng was opposed to borrowing then – calling for “budgetary restraint” at a time when the UK’s debt was far lower than it is now– yet he seems entirely unbothered by it now. His mini-Budget will, in the short-run, be anything but fiscally prudent. But at what cost? We will find out over time. But one aspiring politician was sure of the answer in 2007. “Borrowing, as every economist knows,” he wrote, “will eventually be paid for by more taxation.” Today that aspirant will give his first major speech as Britain’s Chancellor.