Extensive tax cuts, a scrapped increase in social charges, a reduction in the transfer tax for houses and investments in infrastructure and the economy. The British Chancellor of the Exchequer Kwarteng has presented an extensive package of measures to give the ailing economy a boost.
The plans cost the Truss administration billions in both expenditure and lost revenue: £45 billion from the tax cuts, for example, and £60 billion for a price cap on energy costs. But the new prime minister is convinced that the money can be earned back if the economy picks up.
Economic recovery was the most important file waiting for Truss when she succeeded fellow party member Johnson at the beginning of this month. Costs of living and energy have soared, inflation shoots past 10 percent. In various sectors, the British expressed their dissatisfaction through strikes.
With some delay due to the mourning period for Queen Elizabeth, the cabinet now announces what it wants to do. It is striking that the choice has been made to help higher income groups in particular: the highest tax bracket of 45 percent for incomes above 150,000 pounds will disappear, a bonus ceiling for bankers will be scrapped and the rich in particular will have more money left over now that an increase in social charges is not going ahead. This group benefits even the most from the stop on energy costs.
Truss is fully committed to this trickle-down economy, the idea that if the rich have more money, everyone benefits through their spending. For example, the cabinet argues that by removing the transfer tax for homes under £250,000, homeowners will spend more on a coat of paint or a new kitchen.
“There are too many obstacles for companies,” said Minister Kwarteng at the presentation of his ‘mini-budget’ in the House of Commons. “We need a new approach, focused on growth.”
Labor is disgraceful that the money mainly flows to the rich in society. That their money would seep through to the rest of society, economy spokesman Reeves called an outdated idea. “The Prime Minister and Treasury Secretary are two desperate gamblers who continue to play a losing hand.”
Remarkably, there was also criticism from Truss’s own party that the government has not calculated the plans to see what the effect will be on the economy. According to Truss, there was no time for that, but MP Mel Stride, chairman of the Treasury Committee, believes that in times of mistrust there should be more openness.
“If markets are nervous about government bonds and our currency is under pressure, it’s time for more transparency. It must be made clear that the tax cuts or other measures are fiscally justified.”
Critics warn that the bill for this package could fall on future generations. It is still unclear exactly how high this will be: Kwarteng gave few details about how the cabinet wants to finance everything.
“Never before has a government borrowed so much and explained so little,” Reeves said of the plans. “What does the minister have to hide?”
The financial markets also reacted hesitantly. The British pound fell further against the dollar, to its lowest point in 37 years. The value of short-term government bonds is “sinking like a brick,” Reuters news agency reported, with probably the largest single-day loss in value since 2009.