Kwarteng’s political and economic gamble includes the biggest package of tax cuts in 50 years, with the end of the 45p surcharge on top earners as well as a sharp cut in dividend levies. But concern over the amount of debt needed to fund the tax cuts in Kwarteng’s budget statement sparked a frantic day of trading that raised concerns about whether Britain’s new economic approach was sustainable. “The UK is behaving a bit like an emerging market turning into a sinking market,” former US Treasury Secretary Larry Summers told Bloomberg TV. “Britain will be remembered for having the worst macroeconomic policies of any major country for a long time.” The Institute for Fiscal Studies has predicted that public borrowing will top £190bn this year, the third highest peak since the second world war. Kwarteng, in an interview with the Financial Times, promised to produce a medium-term fiscal plan “in the new year” as he seeks to reassure markets that he has a strategy to reduce debt as a share of GDP. However, he insisted that the “big bet” would be to stay on a path of high taxes and low growth. “The risk is to stifle growth. That’s the danger. The only way to deal with this is by growing the economy.” Responding to the financial turmoil that followed his statement, he said: “Markets move all the time. It’s very important to keep calm and focus on the long-term strategy.” New borrowing to fund tax cuts and emergency energy subsidies will be more expensive for the UK, with two-year borrowing costs rising to 4 percent from 0.4 percent a year ago as investors sold government bonds . Kwarteng has staked the Conservative party’s political fortunes on the bet that radical tax cuts and deregulation will lift Britain’s sluggish growth rate to 2.5%. “This is a new approach for a new growth-focused era,” he told MPs, to a chorus of Tory cheers and jeers from the Labor benches. Unlike previous big tax cuts in the 1980s, Kwarteng will borrow tens of billions of pounds to fund his plans, boosting demand at a time when the Bank of England is raising interest rates to bring inflation under control. Paul Johnson, director of the IFS, said: “The plan seems to be to borrow large sums at increasingly expensive interest rates, put public debt on an unsustainable upward trajectory and hope we get better growth.” The National Institute for Economic and Social Research said that because of the additional borrowing, the UK recession will now be shorter and shallower than expected. But to keep inflation under control, he said the BoE would need to raise interest rates to 5% and keep them there until at least 2024. The basic rate of income tax will drop from 20p in the pound to 19p. next April and national insurance will be cut, as will taxes on dividends. Stamp duty will be reduced to help first-time buyers and the planned rise in corporation tax will be scrapped. Income tax cuts mean that a person earning £200,000 could make an annual tax saving of almost £4,500 in 2023-24 compared to 2022-23. A worker on a salary of £20,000 will save £218. The combined cost of the tax cuts to 2026-27 will be almost £45bn. Kwarteng told MPs in a House of Commons statement that his aim was to turn “the vicious cycle of stagnation into a virtuous cycle of growth”. The chancellor’s package combined tax cuts with a raft of supply-side reforms that she admitted could be unpopular in the short term. insisted it would be “unashamedly” pro-growth. However, he admitted that transforming Britain’s growth prospects “is not going to happen overnight”. Anticipating criticism that he was giving undue help to the wealthy, Kwarteng reminded MPs that the government was stepping in to hold down household and business energy bills. He said the cost of the energy package for the first six months would be £60bn. Kwarteng confirmed he was scrapping the cap on bankers’ bonuses, a move intended to make the City of London more competitive but which leaves the Conservatives open to Labor claims it is still “the party of the rich”.

Rachel Reeves, the shadow chancellor, described the budget package as “a final roll of the dice” by the Tory government after “12 years of financial failure”. He warned that government borrowing was too high at a time when interest rates were rising. Among other measures announced by Kwarteng, corporate tax rates would remain at 19 percent, but he would maintain the 8 percent levy on bank profits, which was to be reduced next year.