The Chancellor leaves 11 Downing Street to deliver the growth plan to parliament. Image: Flickr/ HM Treasury
Kwasi Kwarteng has announced a mini-budget he believes will boost economic growth in the cost of living crisis. But campaigners and financial experts are in outcry as they warn his plans will mean a huge tax cut for the richest 1 per cent, while people living in poverty will “be forced to pay the price”.
The new chancellor attempted to reassure families that “help is indeed coming” as he made his announcement. He outlined a series of measures, including a series of tax cuts and economic changes in what is being called a “huge shake-up” of the UK’s finances.
Responding to today’s financial statement, Alison Garnham, the chief executive of Child Poverty Action Group (CPAG) said: “Despite his rhetoric about supporting families, this was in reality a statement for the 1 per cent, saying more about bankers’ bonuses than helping hungry kids.
“Today was a vital opportunity to provide reassurance and support to those who need it the most – but instead the government risks a collision with reality, and the four million kids currently living in poverty in the UK will be forced to pay the price.”
Paul Johnson, the director of the IFS, noted: “Higher 45p rate of tax on incomes over £150,000 to be abolished. That is a surprise.” He added: “Helps roughly highest income 1 per cent.”
Johnson later said: “£45 billion of tax cuts. This is the biggest tax cutting event since 1972. Barber’s ‘dash for growth’ then ended in disaster. That budget is now known as the worst of modern times. Genuinely, I hope this one works very much better.”
Kwarteng’s measures focus squarely on cutting taxes for the rich in the hope it will boost the economy. The cap on bankers’s bonuses has gone, corporation tax has been cut and the top rate of tax for people earning over £150,000 has been abolished entirely.
There were some small benefits for people at the lower end of earnings though, with the lowest rate of income tax reduced from 20 per cent to 19 per cent.
The increase to national insurance has also been rolled back, although that will again benefit higher earners more, and the levy to fund social care has vanished as well.
Economist at the IFS, Ben Zaranko, added: “Health and social care levy scrapped (costs £15bn/year), but health and social care budgets remain unchanged. Last year, government policy was to increase taxes and spend more on the NHS. Now, the policy is still to spend more on the NHS, but just not bother with the taxes.”
“There’s a scorecard in the treasury document,” Zaranko continued, “with 19 separate measures, amounting to a £45 billion fiscal loosening by end of the forecast. Bigger tax cuts than at any fiscal event under Thatcher. The scale of today’s non-budget is simply enormous.”
Money saving expert Martin Lewis said: “That really was quite a staggering statement from a Conservative party government. Huge new borrowing at the same time as cutting taxes. It’s all aimed at growing the economy. I really hope it works. I really worry what happens if it doesn’t.”
He added: “From next April the 45 per cent top rate of tax (applies to those earning £150,000) will be scrapped. So the top rate will be the 40 per cent higher rate threshold. This means mega earners pay the same rate as those on £50,000.”
Jim Pickard, chief political correspondent of the Financial Times, said: “To be clear, this is a tax cut for the highest-paid earners in the UK – it applies to just 629,000 people earning more than £150,000.”
Steven Swinford, of the Times, explained that scrapping the 45p rate or income tax will cost the exchequer £2 billion a year. The 600,000 people who will benefit – all of whom earn over £150,000 – will enjoy an average tax cut worth £10,000. But £10,000 is just the average, he said. The more they earn, the bigger the tax cut.
Frances O’Grady, general secretary of the Trades Union Congress, tweeted: “The government is: Making it easier for City bankers to help themselves. Making it harder for workers to win better pay and conditions.”
Rowena Mason, deputy political editor at the Guardian, commented: “Kwarteng scrapping 45p rate of tax – this is not a mini budget, full blown budget with no independent forecasts to back up effect on public finances.”
Caroline Lucas, of the Green Party, commented: “A really bold move by chancellor today would have been a well-being economy – green jobs, equality, renewables, energy efficiency and sustainable prosperity. Instead we’ve got more of the same broken climate destroying, justice sidestepping economics.”
She was later more deeply critical of Kwarteng’s announcement, adding: “That was vile from Kwasi Kwarteng who actually just said ‘for too long in this country we’ve indulged in a fight over redistribution’. Indulged? Dealing with inequality is somehow over-generous? Does he think people choose to be poor and face disadvantage? Disgusting.”
Garnham, of the CPAG, added: “In the short term benefits must rise with inflation as soon as possible, the benefit cap must be scrapped, and deductions paused to help families get through winter. And sooner rather than later government must grapple with the fact that our social security system is there for a reason – and investing in it is the best way to keep kids and their parents out of poverty.”
Rebecca McDonald, chief Economist at the Joseph Rowntree Foundation said: “This is a budget that has wilfully ignored families struggling through a cost of living emergency and instead targeted its action at the richest. It leaves those on the lowest incomes out in the cold with no extra help to get them through the winter.”
“The government should have combined its decision to put money into the pockets of high earners with a decision to uprate benefits early,” she added. “As it is, those on the lowest incomes will have run out of options this winter – forced to cut back on food and energy, go into debt and into arrears.”
Buy a Big Issue Winter Support Kit for £34.99, you’ll receive four copies of the magazine and vendors could receive immediate tools for survival plus access to vital training and employment pathways to escape poverty for good.