Truss, Kwarteng Defend Mini Budget, Promise ‘Credible’ Fiscal Plan

UK Prime Minister Liz Truss and Chancellor of the Exchequer Kwasi Kwarteng visit Berkeley Modular, in Northfleet, England, on Sept. 23, 2022. Dylan Martinez/WPA Pool/Getty Images

The UK’s Prime Minister Liz Truss and Chancellor of the Exchequer Kwasi Kwarteng appear to be undeterred by criticisms of the government’s mini-budget amid market turmoil and calls to reverse some of the tax cuts.

Truss on Friday insisted the government had been right to subsidise energy bills and cut taxes, while Kwarteng said he will be setting out a “credible plan” to get the public finances back on track with a “commitment to spending discipline.”

It comes as ministers in the Scottish, Welsh, and Northern Irish governments called for an urgent meeting with Kwarteng, labelling the chancellor’s package “a huge gamble on public finances and the health of our economy” in a letter to him.

British Prime Minister Liz Truss leaves Westminster Hall after the Presentation of Addresses by both Houses of Parliament in Westminster Hall at the Houses of Parliament, London, on Sept. 12, 2022. Markus Schreiber - WPA Pool/Getty Images

Writing in The Sun on Friday, Truss said the government had to freeze the energy bills to save businesses and jobs and help people through Christmas, and that the measures are expected to curb inflation by up to five percent.

She also said the government is negotiating with energy suppliers, accelerating home-grown energy production, and focusing on growth instead of redistribution.

The prime minister acknowledged that her plan “involves difficult decisions and does involve disruption in the short term,” but sought to reassure the public, saying “the government has a clear plan” that she believes is “right for the country.”

British Chancellor of the Exchequer Kwasi Kwarteng walks outside Number 10 Downing Street, in London on Sept. 6, 2022. Toby Melville/Reuters

Kwarteng wrote for The Telegraph on the same day, defending his “expensive intervention,” saying the government had no other option.

He also defended the tax cuts, saying the UK was on a “clearly unsustainable” path, with a 70-year high tax burden.

Kwarteng vowed to set out a “credible plan to get debt falling as a share of GDP in the medium term, with new fiscal rules and a commitment to spending discipline” in his Medium-Term Fiscal Plan.

He added that the plan “will be alongside” a full economic and fiscal forecast from the Office for Budget Responsibility (OBR), which is due to be published on Nov. 23.

Meanwhile, levelling up minister Simon Clarke hinted at spending cut, telling The Times: “I do think it’s very hard to cut taxes if you don’t have the commensurate profile of spending and the supply side reform.”

Mini-Budget

The energy bill for a typical UK household was set to jump up by 80 percent on Saturday and double again by April next year.

In her first major policy intervention as the prime minister, Truss capped the energy prices for all households and businesses, with the government picking up the rest of the bill in a package estimated to cost £60 billion in the next six months.

The package will be funded by £62.4 billion of additional bond sales and £10 billion of Treasury bill sales.

Kwarteng also announced a series of tax cuts during his mini-budget announcement (pdf) on Sept. 23, including the reversal of national insurance rise, cancellation of a planned corporation tax hike, removal of stamp duty for around 200,000 home buyers, and reductions in income taxes from April 2023.

According to the Department for Business, Energy, and Industrial Strategy, the tax cuts worth around £45 billion per year by 2026–27.

The Chancellor said the plan is to achieve a trend rate of growth of 2.5 percent over the medium term.

Labour Party leader Sir Keir Starmer making his keynote address during the Labour Party Conference at the ACC Liverpool on Sept. 27, 2022. Peter Byrne/PA Media

The tax cuts were met with fierce opposition from the Labour Party, which wants to keep the top rate of income tax, raise corporation tax, and extend the windfall tax on the profit of oil companies to balance the books.

The budget was also followed by and blamed for a temporary drop of the British Pound against the U.S. dollar, the dumping of gilts, and their ripple effects on pension funds and the housing market.

The government was criticised for not including an OBR forecast in the announcement, but much of the criticism was focused on the abolishing of the top rate of the income tax—which the Treasury estimates will cost around £2.36 billion next year—and the removing of the banker’s bonus cap.

In an unusual move, the International Monetary Fund issued a statement on Sept. 27, cautioning the UK government against deploying “large and untargeted fiscal packages” amid high inflation. It also said the budget “will likely increase inequality.”

Economist: Truss Should Cut Red Tape and Spending

Asked whether the pound fell due to Kwarteng’s budget, Daniel Lacalle, chief economist at hedge fund Tressis, said it was a period of “global currency turmoil.”

“The pound has fallen less than the yen vs the USD and the Bank of Japan had to intervene twice,” he told The Epoch Times on Friday, adding that European currencies, such as the euro, the Norwegian krone, and the Swedish krona, had also fallen in line with or more than the pounds.

Lacalle said Truss should “keep the tax cuts and present a credible spending cut in unnecessary expenses,” and deliver a “strong message” to the market by “cutting red tape and political spending.”

Ben Benjamin Harris-Quinney, chairman of Conservative think tank the Bow Group, said on Thursday that Truss had “skipped to the last page of Thatcherism” and cut taxes before restricting money printing and borrowing.

“Because the government is filled with liberal globalists rather than conservatives, they are trapped between economic reality and globalist agendas like Net Zero, international aid, and mass immigration,” he told The Epoch Times.

“Either they ditch those policies and enact fiscal conservatism, or they are going to crash the economy and crash out of power soon after.”

According to the latest estimate from the Office for National Statistics, the UK’s debt to GDP ratio in the first quarter was 99.6 percent, slightly down from the last five quarters, when the debt was over 100 percent of the GDP.

In 2021–22, British taxpayers paid over £915 billion in taxes, equivalent to around 39 percent of the GDP, the highest percentage since the 1980s.

In 2019–20, the top ten percent of taxpayers had 33.9 percent of the total income and paid 60.5 percent of all taxes; while the bottom half of taxpayers had 25.5 percent of the total income and paid 9.4 percent of all taxes.