Chancellor Kwasi Kwarteng dismissed suggestions his mini-budget is “a gamble” as the market reaction sent the pound to a new 37-year low against the dollar. The pound plummeted after Chancellor Kwasi Kwarteng announced the biggest round of tax cuts in half a century in a bid to boost falling living standards by boosting growth. Using more than 70 billion pounds of increased borrowing, Mr Kwarteng on Friday unveiled a package that included scrapping the top rate of income tax for the highest earners. He cut stamp duty for home buyers and pushed for a cut in the basic rate of income tax, to 19p in the pound, a year earlier by April, as part of tax cuts costing up to £45 billion a year. Mr Kwarteng said the Commons tax cuts were “central to solving the growth puzzle”, as he confirmed plans to cap bankers’ bonuses while adding restrictions to the welfare system.
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But the pound fell to a fresh 37-year low against the dollar at $1.0895 as “frightened” traders swallowed the cost of the spree launched by the Chancellor and Prime Minister Liz Truss two years before the general election. The price of government borrowing surged even higher as UK bond yields rose, amid fears the package had sent UK markets crashing. Speaking to the BBC, Mr Kwarteng admitted the UK was “technically” in recession but claimed the tax-cutting measures would ensure the fall was “shallow”. Mr Kwarteng told the BBC: “Technically the Bank of England said there was a recession, I think it will be shallow and hopefully we can recover and grow.” Pressed on whether he recognizes there is a recession, he said: “I don’t, no no, I said technically there is a recession. “We’ve had two quarters of very little, negative growth, and I think these measures will help us push growth forward.” London shares fell again on Friday as the pound fell to a 37-year low / PA wire Ministers were accused by the Institute of Fiscal Studies (IFS) of “betting the house” by putting public debt on an “unsustainable upward trajectory”. The scathing assessment by the respected financial think tank said only those on incomes above £155,000 would be net beneficiaries of the tax policies announced by the Conservatives in today’s Parliament, with the “vast majority of income taxpayers paying more tax”. But Mr Kwarteng argued that his economic vision of new deregulation would “turn the vicious cycle of stagnation into a virtuous cycle of growth”. He told reporters during a visit to a prefab factory in Kent with Prime Minister Liz Truss after his budget was unveiled: “It’s not a gamble. “What’s a gamble is thinking you can keep raising taxes and have prosperity, which obviously hasn’t worked.” Asked if the fall in sterling was good for the economy, he said: “I’m not commenting on market movements but what is good for the economy is creating an environment where people can come and invest in the UK and that’s exactly what we do.” I’ve done.” However, shadow chancellor Rachel Reeves likened the Prime Minister and Mr Kwarteng to “two desperate gamblers in a casino chasing a lost course”. Treasury estimates put the tax cuts, including the promised reversal of the rise in national insurance and the increase in corporation tax, at nearly £45 billion a year until 2026. Critics questioned the fairness of the package, as the highest 660,000 earners were given an average annual tax cut of £10,000 with the income tax change. From April, those earning more than £150,000 a year will no longer pay the top rate of 45% and will join those on £50,271 paying the 40% rate. The main spending package included: – Cuts to stamp duty in England and Northern Ireland, immediately doubling the exemption level from £125,000 to £250,000 and increasing it for first-time buyers from £300,000 to £425,000. – The two-year bailout of energy bills is estimated to cost around £60 billion in the first six months from October. – The planned increase in alcohol tax on beer, cider, wine and spirits is scrapped, at a cost of £600m. – New low-tax “investment zones” that allow planning rules to be relaxed and business taxes to be reduced to encourage investment. – Legislation forcing unions to put wage offers to a vote of members so that strikes can only be called once negotiations have been completed. – Confirmation of plans which will see around 120,000 more people on Universal Credit take active steps to find more and better paid work or face a cut in their benefits. The package was announced a day after the Bank of England warned that the UK may already be in recession and raised interest rates to 2.25%. That move made government borrowing more expensive than at any time in the past 13 years. Paul Johnson, director of the IFS, said Mr Kwarteng’s “bet on fiscal sustainability” was the “biggest tax cut event since 1972”. Amid rising interest rates, he warned that the Bank of England was certain to raise rates further in response to the package. Mr Johnson said: “Early indications are that the markets – which will have to lend the money needed to plug the gap in the government’s fiscal plans – are not impressed. This is worrying.” He warned it was “unthinkable” not to announce further public spending unless the government allowed “further deterioration” in public services. “Probably this government was borrowing for this as well. Mr. Kwarteng is not just betting on a new strategy, he is betting the house,” Mr. Johnson said. Mr Johnson warned that the package of tax cuts announced 50 years ago by then chancellor Anthony Barber under a dash for growth “ended in disaster”. Mr Kwarteng has pledged to reduce debt as a percentage of GDP over the medium term, but the Finance Ministry estimates the package would need to raise GDP by 1% under current projections every year for five years to cover the cost of the new tax cuts. The Treasury said the overall package would be funded by a £72.4 billion increase in borrowing. The IFS predicts that government borrowing could remain as high as £110bn a year even after the massive energy support package expires in two years, and that future tax rises or spending cuts will be needed to pay off the mounting debt. In the surprise move of what had been dubbed a mini-budget, Mr Kwarteng spent around £2bn a year from 2025, scrapping the top rate of income tax. Treasury estimates say it will save top earners an average of £10,000 a year. Torsten Bell, chief executive of the Resolution Foundation think tank, said those earning £1m a year would get a £55,000 tax cut next year thanks to the wider package. There was also some concern in the Tory party, with the Chair of the Finance Select Committee, Mel Stride, saying there was a “huge gap” created by the lack of provisions for the Accountability Office. The chancellor avoided scrutiny from independent economic analysts by describing the package as a “fiscal event” rather than a full budget. Chancellor of the Exchequer Kwasi Kwarteng leaves 11 Downing Street / PA wire Ms Reeves said: “Never has a government spent so much and explained so little.” On bankers’ bonuses, Mr Kwarteng said the cap to cap them at twice their salary “never limited overall earnings”, adding: “That’s how we’re going to get rid of it”. The head of the Royal College of Nursing, Pat Cullen, urged members to support the strike, calling it a package that gives “billions to the bankers and nothing to the nurses”. The Confederation of British Industry welcomed the package, with chief executive Tony Dunker saying “we have no choice but to go for growth to afford” support during the energy crisis. But the Joseph Rowntree Foundation said it showed the government had “no understanding of the economic realities facing millions of people across the UK”. Rebecca McDonald, chief economist at the anti-poverty charity, said: “This is a budget that has willfully ignored families struggling to cope with a cost-of-living emergency and instead targeted the wealthiest.” The net cost of reversing Boris Johnson and Rishi Sunak’s 1.25 percentage point rise in national insurance imposed in April was estimated at around £15bn a year. Cutting the planned rise in corporation tax by keeping it at 19% was set to reach £18.7bn a year by 2026.
