Analysis: Chancellor’s mini-budget presents Sir Keir Starmer with dilemma as UK returns to Thatcherite free market economics

·2-min read
Analysis: Chancellor’s mini-budget presents Sir Keir Starmer with dilemma as UK returns to Thatcherite free market economics

As he stood at the Commons despatch box dishing out tax cut after tax cut, Kwasi Kwarteng could barely contain his glee.

Here was the new Chancellor burying the legacy of Boris Johnson’s big spending, higher tax agenda - an unashamed return to Thatcherite free market economics, aimed at delivering a kick start to Britain’s flagging economy.

Top rate of income tax: gone. Business tax rise: cancelled. A 1p cut in income tax: brought forward. Bankers bonus cap: scrapped.

The overall cost of the tax cuts? £45billion by 2026/27. All on top of a £60bn support package to help struggling families and firms with soaring energy bills over the next six months.

Mr Kwarteng’s political opponents queued up to accuse him of lining the pockets of the rich while poorer families were battling the cost of living crisis. One Labour MP labelled it the “banker’s budget”.

But Mr Kwarteng made absolutely no apology for the string of radical policies, which Paul Johnson, director of the Institute for Fiscal Studies, said was the biggest set of tax cutting measures since 1972.

With the Bank of England warning on Thursday that the UK economy may already be in recession, the landmark shift in approach is all aimed at boosting economic growth to 2.5 per cent.

The Chancellor’s argument is that by slashing taxes for business and top earners, investment in the economy will grow, spending will increase and all boats will be lifted.

Labour said it was a reckless gamble which showed Liz Truss’s new Tory administration was detached from reality.

The economics of the policies are far from certain. Some economists question the link between cutting taxes and economic growth.

And the politics are potentially toxic, drawing a clear divide between the Conservatives and Labour as a possible general election in 2024 looms into view.

But while it might look like a gift for Labour, it presents Sir Keir Starmer with a dilemma. His hopes of unseating the Tories rests on shifting to the centre and he and his shadow chancellor Rachel Reeves have spent the past two years trying to rebuild bridges with business following the hard left era of Jeremy Corbyn.

Now Sir Keir will face difficult questions over whether he would immediately reinstate the top rate of tax for the highest earners and whether he would raise taxes on business profits.

Ultimately though this head spinning package of measures will be judged by its own title; ‘The Growth Plan 2022’. On this Mr Kwarteng and the Treasury are being vague on when the 2.5 per cent growth pledge will be delivered.

If the wider public don’t see any evidence that the trickle down plan is working within two years - a tall order given the current woeful state of Britain’s inflation hit economy - then the Chancellor and Ms Truss may pay the ultimate price at the ballot box.