“This is a new era. Yes. A new era… New era.” Thus Kwasi Kwarteng trying to make himself heard against a hubbub in the Commons on Friday morning. He was absolutely right. This is a new era. It’s not one mandated at any point by the British people, but it is the most aggressive ideological fracture in the politics of these islands for 40 years.
In scale and speed the “fiscal event” was everything promised by Liz Truss’s leadership campaign – and then some. After the entirely necessary deluge of money being spent to stop families and businesses going bust over energy bills during the next two years, a huge splurge of tax cuts and deregulation gushed in almost every direction.
One headline-grabber, the abolition of the top rate of income tax, will help 629,000 well-off people by an estimated £10,000 a year. It isn’t trickle-down economics. It’s drip-down.
The government is going full throttle for an ideological argument about whether growth at all costs matters more than any residual sense of fairness. Quite why a tax cut for people earning more than £150,000 a year is not inflationary but pro-growth, while higher wages for workers doing essential jobs, and who are obliged to spend every penny in their local economies, is inflationary and harms growth, will baffle ordinary people marooned with ordinary ideological intelligences.
A more modest penny off the basic rate of tax comes later, while the real-world impact on the working lives of millions remains worryingly mysterious. Part of the “supply-side” reform in Kwasi’s quasi-Budget is a bonfire of EU-derived employment regulations, but without any further explanation from the Chancellor. I asked his spokesman whether that meant the end of the guaranteed 48-hour working week, guaranteed annual holidays and the retention of rights when companies are sold. Answer came there none. There will be a statement in due course from Jacob Rees-Mogg, the Business Secretary.
It’s the quantity of borrowing and the inflationary impact of the tax cuts that will worry financial markets. As I am writing this, the pound continues to plummet. It’s true that the cap on energy bills will bring down inflation, but a lower pound means, of course, that we are importing more of it.
I’ve said before and I say again: the overall strategy might work. A giant, no-holds-barred drive for growth, with little focus on the environment and none on fairness, might produce such a surge in investment, employment and tax revenues that by the next election voters will turn again to the Conservatives.
The risks, however, are immense. I spoke to one of Truss’s ministers who was not in the chamber for the Chancellor’s statement because they thought their face would give away their feelings. “There’s just no coherence,” I was told. “This is, by my calculation, the fifth different Conservative growth policy in recent years. We’ve had David Cameron and sharing the proceeds of growth; we’ve had George Osborne and austerity; we’ve had the panic after Brexit and Theresa’s technocratic tinkering; we’ve had Boris’s spend-spend boosterism; and now this. So far, nothing has worked.”
Indeed. And the more the details are thrashed out, the bigger Liz Truss’s problems in parliament will be. There are simply too many Rishi Sunak backers and other dissidents in the background. And this radical break with the recent past has no democratic mandate behind it. It’s nothing like the 2019 Tory manifesto, and plenty of Tory MPs are uneasily aware of that.
The proposed investment zones in 38 areas in England, with low taxes and light regulations, are, however, politically shrewd because they buy off parts of the “red wall” whose local MPs and leaders will be bidding for them. Yet overall this is fundamentally two-nations politics which ought – ought – to further enhance Keir Starmer’s prospects of becoming the next prime minister.
In one way, it is all the honest and open consequence of some of those earlier Tory policy shifts. It’s the consequence of Brexit. Remember that there was never any point in leaving the EU to carry on doing things more or less as if we hadn’t. That led to popularity of the phrase “Singapore on Thames”, an extension of the thinking of Margaret Thatcher in her Bruges-speech phase, which has been much argued about ever since. We are nearer than ever before to experiencing what that vision is like in real life.
[See also: Kwasi Kwarteng scraps 45% top tax rate]