Kwasi takes the fast lane: Chancellor aims to free up business and unleash UK growth, says ALEX BRUMMER
Stilettos have already been sharpened ahead of this week’s tax event.
Prime Minister Liz Truss and her chancellor, Kwasi Kwarteng, are portrayed by some leading economists as fanatics bent on destroying Britain and favoring affluent corporate interests over the poor.
But the fiscal event, or mini-budget, will be different. It will be a bold attempt to retreat from the Treasury orthodoxy that has pushed taxation, as a percentage of national output, to its highest level since the late 1940s. It will also seek to free the financial sector from the shackles of Europe.
Prime Minister Liz Truss and Chancellor Kwasi Kwarteng (pictured), are portrayed by some economists as fanatics bent on destroying Britain and favoring wealthy corporate interests
The likely lifting of the cap on bankers’ bonuses is part of a wider program to boost investment opportunities for London-based insurers, pension funds and other asset managers.
The decision follows Kwarteng’s dialogue with city financiers. It also seeks to maintain the UK’s status as a leader in professional services.
No one can argue that the abrupt change of direction does not occur in difficult economic circumstances. Inflation is a global problem.
This week, the US Federal Reserve and the Bank of England will strike a blow against rising prices and consumption with interest rate hikes.
The debate at the Bank is likely to focus on whether an extra half point at 2.25% is appropriate or go bolder with three quarter points.
Bank hawks may well see the need to offset the bold moves of the Truss government.
On the spending front, he announced a significant energy subsidy for each household over two years with a bill limit of £2,500.
The less well-off have already received aid under Rishi Sunak’s £15billion May scheme.
The pandemic and runaway inflation have changed the way finance ministers now work. Instead of once or twice a year, “tax events” now occur every few months.
Decisive action will be taken in the Kwarteng mini-budget this Friday. The proposed rise in corporation tax next year, from 19% to 26%, must be scrapped.
This will no doubt be presented as a gift to overly wealthy corporations. Hopefully this will encourage recipients to invest more in equipment and colleagues.
When justified by productivity gains, the workforce should be rewarded with the same generosity as in corporate boards.
Another big promised tax change is a reversal of the 1.25% National Insurance increase for the NHS and social care. The measure was originally intended to raise around £12bn a year.
Sunak began rolling it back earlier this year when he removed the burden from those in lower tax brackets. The idea of advancing Sunak’s promised 1 pence income tax for 2024 has also been mooted.
Kwarteng’s hope is that by freeing up business and spending, UK growth can be freed up. And there may well be offers of regional tax zones.
Progress may suffer due to a credit crunch and an anticipated global slowdown or recession.
The United Kingdom lives on international trade and cannot escape a slowdown. But to make matters worse, by slamming on tax breaks, would be foolish.
Truss and the company are just following the kind of policies pioneered by Margaret Thatcher and emulated by Gordon Brown, who recognized the need to free the company.
It’s a gamble, in an age of high borrowing and debt. But the UK, with a lower debt-to-GDP ratio than many competitors (including the US, Japan, Italy and France), has fiscal flexibility to try something different.