Kwasi Kwarteng’s mini-Budget abolished the 45p rate of income tax paid by those earning more than £150,000 a year. That’s a tax bung for just 629,000 people, according to HMRC data. It will cost – by my calculation, because Kwarteng refused to present one – £7.4 billion over the next five years. That’s money that could have been spent on services or reducing people’s gas bills.
Those 629,000 people, a bit less than 2 per cent of the workforce, will get their basic rate of income tax cut, and see taxes on dividends slashed by £4.4bn over the same period. If they work in banking, where £150k mid-career salaries are normal, they’ll have the cap on their Christmas bonuses removed.
This, in short, was a budget for the 1 per cent. Kwarteng explicitly abandoned redistribution as a political goal, telling MPs: “For too long in this country we have indulged in a fight over redistribution. Now, we need to focus on growth, not just how we tax and spend.” For good measure he promised to slash benefits for 120,000 of the poorest people, and limit workers’ ability to negotiate higher pay by shackling trade union rights.
Whether or not you care about the fairness of this, the basic problem is that it will not work. The Tories are right to push for sustained growth in the medium term, because their own policies have pushed Britain into a recession at the very moment a coordinated fiscal tightening is pushing the rest of the world towards recession.
But their growth plans are flimsy. The mini-Budget offers a list of towns that might one day become “investment zones”, with more tax breaks for the better off and planning rules that will let speculators build homes in people’s back gardens. It offers a list of rail and road schemes that might one day happen. But at the end of the day, it’s just a list. A menu without prices, as Rachel Reeves, the shadow chancellor, put it.
At the core of the proposition is the idea that cutting taxes for companies and the better off will stimulate growth that, eventually, benefits everybody. It’s trickle-down economics. It has never worked. But let’s understand why, at this moment, it is a dangerous scam.
Buried in Kwarteng’s accompanying document is a chart showing how much growth the government expects to generate from tax cuts. It claims that, if you raise GDP growth over its current projected path by one percentage point, it would generate up to £47bn extra taxes in five years’ time. This is, in the phrase associated with all financial scams, “for illustrative purposes only”. The government cannot present proof, even from the Treasury, that these tax cutting measures alone will pay for themselves in extra growth and revenues, because there is no plan for investment, and redistribution is out of the window.
The fact is there can be no sustained increase in growth without higher wages, better funded public services and more investment by the private sector in businesses where skills, wages and productivity are high. This budget will produce a sugar rush for the rich: Christmas will come early for Savile Row, the Swiss watch emporia, the luxury jewellers and the Maserati showrooms. For the rest of us, basically, there’s nothing but an energy price cap that will still leave 38 per cent of all homes in fuel poverty.