Is there any cash left in the Treasury? Kwasi Kwarteng, the Chancellor, delivered his mini-Budget this morning and scarcely a tax was left untouched.
There are three major taxes, which together bring in more than 60 per cent of the government’s revenue: income tax, national insurance and VAT. Two of those taxes – the first two – are progressive (as you earn more, you pay more). The third, VAT, is regressive (it is applied on goods, so everyone pays the same rate). Kwarteng cut both of the progressive taxes.
He went further, even. By abolishing the 45p rate of income tax (which is currently levied on incomes above £150,000), he has left graduates on £50,000 paying a far higher marginal tax (51 per cent, including student loan payments) rate than someone on £200,000 (42 per cent) who happened to go to university in an earlier era (when a university education was far more valuable).
Kwarteng delivered this remarkable shift in policy with a calm command from the dispatch box. As I wrote yesterday, part of his skill as a politician comes from his ability to say unreasonable things reasonably and to appear unfazed by his critics. Rishi Sunak would deliver his Budgets with robotic precision, but the effect was unnerving rather than calming: you felt his carefully rehearsed style could malfunction at any point. Kwarteng, in contrast, was unperturbed by the howls from the opposition benches as he announced tax cuts amounting to £45bn, the largest in a single fiscal event since the Tory chancellor Anthony Barber’s 1972 Budget.
But Kwarteng’s abolition of the top rate of income tax was not, at first, met with howls of derision. Instead the House was, for a moment, stunned. The policy had not been leaked or hinted at in advance, and both sets of MPs were unsure how to react. Tory backbenchers, many of whom could be expected to express delight, were as quiet as Labour. Silence turned to chatter as MPs absorbed the news.
Rachel Reeves, the shadow chancellor, in her assured response to Kwarteng’s statement, had no time to integrate the cut into her critique, but she did not need to: it was only an extension of every other tax cut Kwarteng announced. “This is a Budget without figures, a menu without prices,” said Reeves, referring to Kwarteng’s refusal to publish an updated forecast from the Office for Budget Responsibility. The Chancellor, she noted, is allowing borrowing to surge just as interest rates rise.
“You cannot tax your way to prosperity,” Kwarteng retorted in his reply. “We’ve got to unshackle the creative energies of this country.” That is what Kwarteng is attempting to do. “We are growing the size of the economy so that everyone benefits,” his spokesman explained to journalists after his statement. That, at least, is the theory.