Kwasi Kwarteng is “betting the house” and putting national debt on an “unsustainable rising path” with vast tax cuts that only benefit those earning more than £155,000, according to the Institute of Fiscal Studies.
The respected financial think tank accused the Chancellor of detailing the biggest package of cuts in 50 years “without even a semblance of an effort to make the public finance numbers add up”.
Director Paul Johnson gave a scathing assessment of the Chancellor’s economic strategy that included nearly £45 billion a year in tax cuts and a huge hike in borrowing.
Worth repeating. Take all the tax changes coming in over next few years and:
If your income is < £155k, you lose
If your income is > £155k you win
If your income > £1m you gain more than £40,000 https://t.co/TkkGIKvNrl
— Paul Johnson (@PJTheEconomist) September 23, 2022
Despite the reversal of national insurance hike and the reduction of the lower band of income tax, the IFS said the changes would leave the “vast majority of income tax payers paying more tax” by 2025/26 due to Conservative announcements made during and before Friday’s “mini-budget”.
Only those with incomes over at least £155,000 will be net beneficiaries of the changes made during the current Parliament, with the richest benefiting from measures including the abolition of the highest income tax rate.
The “biggest losers” in cash terms will be those earning between £63,000 and £125,000, the IFS said.
Mr Johnson accused the Chancellor of being willing to “gamble with fiscal sustainability in order to push through these huge tax cuts” and warned the Bank of England will likely further increase interest rates in response.
Mr Kwarteng has shown himself willing to gamble with fiscal sustainability in order to push through these huge tax cuts
Paul Johnson, Institute of Fiscal Studies
The economist also warned of “worrying” signs that the markets are unimpressed by the announcement, with the pound further plummeting.
Mr Johnson suggested the dramatic change in direction might give longer-serving Cabinet ministers who had been committed to fiscal responsibility “whiplash”.
The Treasury says more than £70 billion of increased borrowing will pay for the tax cuts and the IFS warns borrowing could remain well over £110 billion even after the end of the massive energy support scheme.
Mr Johnson said the plan “seems to be to borrow large sums at increasingly expensive rates, put government debt on an unsustainable rising path, and hope that we get better growth”.
“Mr Kwarteng has shown himself willing to gamble with fiscal sustainability in order to push through these huge tax cuts,” Mr Johnson said.
“He is willing to shrug off the risks of inflation, and to invite significantly higher interest rates.
“Early signs are that the markets – who will have to lend the money required to plug the gap in the government’s fiscal plans – aren’t impressed. This is worrying.”
Mr Johnson also warned that it was “inconceivable” that further public spending was not being announced, unless the Government will allow a “further deterioration” in public services.
“Presumably this Government would borrow for that also. Mr Kwarteng is not just gambling on a new strategy, he is betting the house,” Mr Johnson said.