A budget by the rich, for the rich

So there we have it, the big reveal, Any pretence of following ‘one nation’ Toryism, of ‘fixing the burning injustices’ in our society, or helping the ‘just about managing’ have been abandoned in a grim dash to cut taxes for the most well off in our society.

It is a wide open field, but perhaps the most morally repugnant policy in today’s ‘fiscal statement’ is the scrapping of bankers’ bonus cap. Just in case you were under the impression that this cap, introduced in 2014, placed bankers in a precarious financial position reliant on foodbanks and charity, a reminder that the cap was set at 100% of their basic salary, or at 200% with shareholder approval. Meanwhile, those in the public sector are offered single digit increases well below inflation, not just a cap to their wages, but a real terms wages cut. The government will have been fully aware of the public feeling about bankers’ bonuses. Their ideological decision to remove this cap is a giant raised middle finger to ordinary working people across the UK.

Millions of people will face a stark choice between heating their homes or feeding their families this winter. The Chancellor boasted about the support he has given to vulnerable families and talked about the £1,000 reduction in energy bills as some sort of windfall for the public. The reality is that it is a cut in future energy bills that many families simply could not have afforded anyway. As it stands energy bills this winter will still be around double those of last winter.

Another giveaway to the richest in our society, for whom the current cost of living crisis won’t even register as a minor inconvenience, was the scrapping of the 45p tax rate from April 2023 for the around 660,000 people in the UK earning above £150,000. This tax cut means that those with incomes of £1 million or more will gain more than £40,000 each.

Another tax cut gleefully pulled out of the hat by the Chancellor was the 1.25% cut in the National Insurance rate from 6th November 2022. Again high earners will benefit far more than those on lower incomes as shown in the chart below. Kwasi Kwarteng could have retained the 1.25% increase for those earning above the ‘Upper Earning Limit’ currently £50,270 a year, but again chose to ensure that the richest gained the most.

Savings due to NI cuts from 6th November 2022

Just a few weeks in to to the Truss government and it’s clear that they believe independent scrutiny of their actions is beneath them. Truss stated that she didn’t need an ethics advisor because she “knows the difference between right and wrong”. Kwasi Kwarteng avoided contemporary independent scrutiny by the ‘Office of Budget Responsibility’ of the largest tax cuts in 50 years by classing today’s budget as a fiscal statement, rather than what we all know was a budget. Why the need to avoid scrutiny if they have nothing to hide?

Family income changes per income deciles as a result of Kwarteng’s budget

Has this blatant tax giveaway to the most well off been matched by similar level of generosity to those struggling to make ends meet? Hardly. Instead, Kwarteng chose to double down on the threat of sanctions for those on Universal Credit and tellingly refused to confirm that social security payments would be uprated in line with inflation. While someone earning £20,000 a year will gain £157 from the cumulative tax cuts a person earning £1 million will gain £55,220.

Kwarteng’s response to the looming climate disaster – extract more fossil fuels from the North Sea, end the ban on fracking and build more roads! The government expects to grant around 100 oil and gas extraction licences in the North Sea and set out plans for 86 road schemes. Meanwhile their funding for reducing domestic energy consumption is a drop in the ocean in comparison to what is required.

The budget was also a giveaway for big business as those companies making profits of more than £250,000 will no longer have to pay the planned increase in corporation tax to 25%. UK companies pay the lowest corporation tax in the G20, yet there is little evidence that this boosts investment.

The Stamp Duty cut will also disproportionally benefit London and the South East over other regions. ‘Levelling up’ is a thing of the past in this Truss-led administration. The government appears to have abandoned the ‘red wall’ seats in the North of England to return to their homelands in the Home Counties.

The tax giveaway is unevenly spread across the UK Source: Resolution Foundation

As the Chancellor maintains that falling debt is his key metric for fiscal sustainability the Resolution Foundation has stated that without any tax rises, there will need to be spending cuts of around £36 billion by the middle of the decade. These cuts will be applied to public services already on their knees after 12 years of Tory rule.

So what do people with far more knowledge of economics than me make of Kwarteng’s budget? Larry Summers, a former US Treasury Secretary said “Britain will be remembered for having pursued the worst macroeconomic policies of any major country in a long time.” The financial markets reacted by sending the value of the pound to the lowest level since 1985 as US investment bank JP Morgan stated the sell off indicated “a broader loss of investor confidence in the government’s approach.” The fall in the value of the pound makes imports more expensive and the market reaction to the budget was an increase in the cost of government borrowing.

We now have the government that proudly removes the limit on bankers bonuses while at the same time claiming that modest pay rises for public sector workers and railway staff would fuel rampant inflation. In most peoples eyes I believe this bizarre argument will not be credible. Perhaps Truss and Kwarteng know the game is up and are adopting a ‘scorched earth’ policy in anticipation of being booted out of office within the next two years.

While the budget may seem like electoral suicide the odds are still stacked in favour of the Conservatives. The ‘first past the post’ system means Labour has a mountain to climb to obtain a working majority and the government will no doubt still be backed by a hard right media who will back the upcoming attacks on workers rights, public services and migrants.

Labour must resist the temptation to sit back and watch it all go wrong in anticipation of electoral success. To date Labour have been light on policy announcements. This must change and the upcoming Labour Conference in Liverpool is the perfect opportunity to set out policies which embrace empathy and compassion rather than greed and division. Let’s prioritise the needs of those on prepayment meters rather than the greed of corporate lobbyists.

Julian Vaughan

24th September 2022

Further reading

The Resolution Foundation: Blowing the Budget https://www.resolutionfoundation.org/publications/blowing-the-budget/

Institute for Fiscal Studies: Mini-Budget Response https://ifs.org.uk/articles/mini-budget-response

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