The "mini" budget: an economic crisis authored by the government
By WILL ALLEN
On 23rd September the Chancellor, Kwasi Kwarteng, presented a budget in all but name – a ‘mini’ budget that he insisted was a ‘fiscal event’. Aside from being a reckless gamble on fantasy economics that gives eye watering handouts to the rich, it was an unmitigated disaster that sparked an economic crisis.
Surveying the sixth ‘Plan for Growth’ in twelve years, you gain a sense of its true scale. Inside the blue folder there are sweeping tax cuts and carte blanche deregulation. The tax cuts alone make Kwarteng’s fiscal package the largest tax-cutting budget since Anthony Barber’s in 1972. That means it dwarfs the likes of Nigel Lawson’s 1988 budget, which saw the top rate of income tax fall from 60 to 40 percent.
The chancellor believes these sweeping tax cuts will deliver growth by channelling vast sums to corporations and the richest individuals in society. Kwarteng’s vision is of a low tax, low regulation state that can supposedly deliver astonishing levels of stable economic growth. Yet, in reality, trickle-down economics is an illusion; one that forces its true believers to cut tax at the public’s expense. Just look to the past, for successive iterations of this decade-old Conservative government have cut both personal and business taxes. George Osborne, one of Kwarteng’s predecessors, slashed corporation tax in search of economic growth. But what Britain got in return for these tax cuts was a decade of rampant inequality, low productivity, stagnant wages, and public services on the brink of collapse.
Today, Kwarteng and the Prime Minister, Liz Truss, are once again on the hunt for growth by rolling the dice on this tired proposition. However, this time the pair are gambling more recklessly than ever. The Plan for Growth presented to Britain lacked a set of economic forecasts, which would have illustrated that the maths simply does not add up. This was because Kwarteng scrupulously froze out the Office for Budget Responsibility, an agency set up by the government in 2011 to provide independent economic forecasts, from producing these vital documents. As the Chancellor pulls this sleight of hand, government borrowing is set to grow relentlessly to the point it becomes unsustainable – making these non-existent forecasts critical for transparency.
As a result of this needless evasion of scrutiny, combined with a plan that plainly does not add up, economic chaos hit Britain. While the package was being delivered, it swept away confidence in market after market. The bond market, which finances government borrowing, imploded. The pound crashed to historic lows against both a strong dollar and the languishing euro, making imports paid for in those currencies wildly expensive. Banks began pulling mortgages off the market; in fact, since the fiscal event was held, a staggering two-fifths of deals have been withdrawn, whilst others have surged to unaffordable prices. As the crisis deteriorated further, having been entirely authored by the government, the Bank of England was forced to act in an unprecedented way – spending £65 billion to prop up the government bond market and stave off the collapse of the pension funds that Britons rely on for financial security. All of this carnage hit Britain in the space of a few days, but Britain remains stuck on a losing streak that is only getting worse.
Truss and her government are making plain this is only the beginning of the economic pain they intend to summon. After blowing up the UK economy, Kwarteng celebrated with hedge fund managers who told him to double down – and that is what he has done. The Treasury, along with government ministers and multiple Members of Parliament, are now talking up brutal rounds of spending cuts. In an attempt to make the unfunded tax cuts and excessive borrowing add up, Truss intends to strip the most vulnerable of welfare payments by letting benefits increase well below inflation. Another target of Truss’s forthcoming cuts are Britain’s creaking public services, which are set to be stripped of funding at a moment they cannot afford. The optics of a return to austerity purely to finance tax cuts for the rich could not get much worse for a government that once espoused an agenda of levelling up.
The plan for growth represents a crusade for economic growth at all costs. In just a week, this package of casino economics has plunged the UK into economic turmoil and shredded the Conservatives supposed record of economic competence. Mind-blowingly, this is a crisis authored entirely by Truss and her Chancellor, both of whom have no mandate for this reckless gamble.
Image: Flickr / HM Treasury