NEWS COMMENT 25.09.22 – updates 10.10.22
Independents Respond to the “Mini Budget”
The new PM and cabinet started off their term by the biggest tax-cutting since 1972, abolishing the top rate on income tax and ending the cap on bankers’ bonuses. It is to be paid for by borrowing. Elected by less that 0.2% of the voters, the new Prime Minister has a thin mandate for such significant and risky moves that do not even begin to tackle our big issues, such as climate change. (Even with the sudden u-turn on the top rate of tax, an extra £43bn is borrowed and spent, with nothing to show for it. No buildings, no homes, no business units and no business plan.)
The new Chancellor, Kwasi Kwarteng, reversed the decision to increase corporation tax for the big companies. The windfall tax on energy producing companies to pay for the fuel subsidy was withdrawn, leaving us to pick up the bill. More expensive dwellings will now pay less stamp duty and get more tax relief up to £625K for some. Those on the “breadline”, on Universal Credit, have no assurance their “bottom line” will keep pace with inflation.
The 1% on national insurance that was going to the NHS and due to be shared with Councils for care, is now gone, leaving Councils short. (£30bn/year)
The tax cuts are due to be funded by a huge leap in government borrowing from £72.4bn to £234.1bn.
That includes £60bn for the energy package for six months and £43bn for tax cuts. Borrowing to reduce tax is seen as a very risky strategy, especially with interest rates and inflation both risen significantly.
The package has shocked the financial markets and the value of the pound slumped, and interest rates rose, only held by big payouts from the bank. The usual report from the Office of Budget Responsibility on the impact of the proposals, is not made public. No forecasts of the impact of the measures are given and no assurance that it adds up.
The Director of the Institute of Fiscal Studies 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.” Although the Government u-turned on one important point, it shows us the intention: Significant tax cuts, especially for the very rich, regardless of this time of national crisis and anxiety.
New legislation is proposed to reduce the impact of local voices in big developments; rail, roads and energy such as solar farms, turbines, fracking and nuclear waste. The professional assessments of the impact of proposed development on the environment are to be scrapped, so damage cannot be measured, nor influence development. Is it OK to have “growth at any cost”? There is no mention of tackling climate change, nor adapting to it.
“Investment Zones” mean local people have less say on planning and local councils receive less business tax for ten years. The North Hykeham Relief Road is included, though the road itself, already has planning permission and funding identified. The road could already start sooner than the build period of 2025-2028 already planned, as the money is already identified, so no change there.
Does Trickle-down Economics work?
Liz Truss argued that reducing tax is intended to trickle down and “help everyone”. However, trickle-down economics fails if the wealthy save or spend abroad, both of which they are more able to do. Trickle-down economics was tried unsuccessfully in the 1980’s in the UK and in the USA and a report from the IMF in 2015 found that increasing the economic share of the poor increased growth, while making the rich richer, led to lower growth. To increase growth, our Councils can borrow to spend on investment with a calculated minimum 6% return, such as building homes that are needed, or business units, all based on a business plan. Those responsible elements appear to be missing from the Government’s growth plan. Liz Truss also says reducing tax is intended to increase spend which leads to inflation which the Banks are taking action to counter.
Leader: Cllr Marianne Overton MBE Leader 07920 235 364 email@example.com @overtonmarianne
Institute of Fiscal Studies https://ifs.org.uk/publications/reversing-nics-and-corporation-tax-rises-would-leave-debt-unsustainable-path and https://ifs.org.uk/articles/mini-budget-response
Guardian: Kwarteng accused of reckless mini-budget for the rich as pound plummets https://www.theguardian.com/uk-news/2022/sep/23/kwarteng-accused-of-reckless-mini-budget-for-the-rich-as-pound-crashes
Times: Liz Truss’s Tax Gamble https://www.thetimes.co.uk/article/mini-budget-2022-chancellor-scraps-45p-top-rate-of-income-tax-follow-live-62s3j228z
Tejvan Pettinger https://www.economicshelp.org/blog/