chancellor Quasi Quarteng has denied suggestions that he gambles with the UK economy, insisting that the biggest string of tax cuts in half a century were “absolutely fair” as his mini-budget was met with hostility.
The Institute of Fiscal Studies (IFS) said it “gambled the house” to persevere Government debt on an “unsustainable upward path”.
The scathing assessment from the respected financial think tank said only those with incomes over £155,000 will be net beneficiaries of the tax policies announced by the Conservatives over the current parliamentwith the “vast majority of income taxpayers paying more tax”.
While visiting a factory in Knows on Friday afternoon, Mr. Kwarteng told reporters, “It’s not a gamble.
“What’s a gamble is thinking you can keep raising taxes and get wealth, which clearly didn’t work.
“We can’t have a tax system where you peak at 70 years, so the last time we had tax rates at this level for my tax cuts was actually before Her Majesty took the throne.
“That was absolutely unsustainable and so I’m delighted to have been able to cut taxes across the entire stretch this morning.”
The Resolution Foundation think tank said the Chancellor’s measures will involve an additional £411bn loan over the next five years.
It said the tax cuts are doing very little to boost the incomes of those who need it most, pointing out that someone making £1m a year would make more than £55,220 a year, while someone making £20,000 would make just £157 would receive.
The reaction in financial markets was swift and punishing as the pound plunged to new 37-year lows, making imports more expensive.
Larry Summers, a former US treasury Secretary, warned that sterling could fall past parity with the dollar.
“I’m sorry to say it, but I think the UK is behaving a bit like an emerging market turning itself into a sinking market,” he told Bloomberg.
Asked whether a decline in sterling was good for the economy, Mr Kwarteng said: “I don’t comment on market movements, but what is good for the economy is creating an environment for people to come and invest in the UK. and that is exactly what we did.”
Chief Secretary to the Treasury Chris Philp told BBC Radio 4’s PM programme: “I think when the Chancellor sets out his medium-term fiscal plan, including reducing debt-to-GDP, I think the markets and others will see that we have a credible and responsible plan”.
The package was announced a day after the Bank of England warned that the UK may already be in recession and hiked interest rates to 2.25%.
That move made government borrowing more expensive than at any time in the past 13 years.
Paul Johnson, the IFS director, said Mr. Kwarteng’s “gamble on fiscal sustainability” was the “biggest tax-cutting event since 1972.”
Amid rising interest rates, he warned that the Bank of England will certainly raise interest rates further in response to the package.
The chancellor admitted the UK is now “technically” in recession, but claimed his tax cut measures will ensure the dip remains “shallow”.
He told the BBC: “Technically the Bank of England said there was a recession, I think it will be superficial and I hope we can recover and grow.”
When asked if he acknowledged there was a recession, he said: “I don’t recognize that, no no, I said there is technically a recession.
“We’ve had two quarters of very little negative growth and I think these measures will help us drive growth.”
This was the budget of the billionaires, showing that the conservatives are totally out of touch with families struggling to pay the bills
Using more than £70bn in more loans, Mr Kwarteng on Friday put together a package that would abolish the highest income tax rate for the highest earners.
He cut stamp duties on homebuyers and proposed a cut in the basic income tax rate to £19 pence a year earlier, to April, as part of tax cuts costing up to £45bn a year.
Mr Kwarteng said the House of Commons tax cuts are “critical to solving the growth problem”, while confirming plans to remove the cap on bankers’ bonuses while adding restrictions to the social security system.
Nearly two-thirds of people said in a quick poll that the package would help the wealthy the most, and only a fifth said they would be better off as a result of the measures.
According to a YouGov survey, 63% believed the tax plans would “primarily benefit the rich over the poor”. Only 19% believed the package would make them better off and 28% predicted they would be worse off.
Shadow Chancellor Rachel Reeves said the strategy amounted to “allowing 12 years of economic failure” under successive Conservative governments.
The Labor MP compared the Prime Minister and Mr Kwarteng to “two desperate gamblers in a casino looking for a lost streak”.
Liberal Democrat leader Sir Ed Davey said: “This was the billionaires’ budget, showing that the Conservatives are totally out of touch with families struggling to pay the bills.”
There was also criticism from Tory MPs, with conservative former cabinet minister Julian Smith saying: “This massive tax cut for the very wealthy at a time of national crisis and real fear and anxiety among low-income workers and citizens is wrong.”
But Mr. Kwarteng said, “It’s absolutely fair to cut people’s taxes and make sure… people keep more of what they earn.”
The chancellor avoided scrutiny from the independent financial analysts by describing the package as a “fiscal event” rather than a full budget.