The mini-Budget announced not only a new economic era focused on growth, but a new dawn for the Tory party
Source - Daily Telegraph - 24/09/22
We need a new approach for a new era, focused on growth,” announced the Chancellor, prompting hoots from Labour MPs, who like to remind everyone that the Tories have been in office since 2010. Yet what followed really did mark a new era. It felt as if the party that had rescued Britain in the 1980s was back after 32 years in Opposition.
The stunning thing about Kwasi Kwarteng’s statement was not the amount of money he announced; it was his relentless, Terminator-like pursuit of growth.
Forget the Labour charge that he is creating some sort of minimalist, Randian state. His Treasury is still hoovering up more moolah than Gordon Brown’s, let alone Nigel Lawson’s.
Actual tax cuts – as opposed to the cancellation of scheduled rises – accounted for the teensiest sliver of Friday’s statement. By far the largest chunk was a new spending commitment, namely the energy price freeze, costing £60 billion. Then came the non-rises in National Insurance (£19 billion) and corporation tax (another £19 billion). Even if we put them all together, the changes in stamp duty, self-employment rules, top rate tax and business investment come to £6 billion.
No, it is not the numbers that are startling. It is the unashamed celebration of prosperity, the determination to ensure that there is more to share out rather than fretting over the apportionment. With the exception of the energy price cap, every line in the mini-Budget was about making Britain richer.
The announcements came in such a delightful blur that they were hard to take in. Predictable rows about the bankers’ bonus cap (decreed by the EU to hurt London) and top rate income tax (which Gordon Brown brought in at the very end of his administration, like a booby trap left by retreating Russians, because he knew it would be costly but popular) meant that other measures received little notice. Yet each was carefully chosen to increase national competitiveness.
All EU-derived regulations will lapse at the end of next year unless expressly readopted. More surplus government land will be sold for housing. Local airports will be able to sell VAT-free items, so that passengers don’t do their shopping at the other end of their journeys. The war that Gordon Brown launched against Britain’s five million self-employed workers, using the IR35, has been called off. These reforms are not intended to generate headlines, they are intended to generate growth.
And more is on the way: liberation of financial services, lighter business regulation, easier planning, cheaper childcare, safeguards against strike action. Liz Truss, the first PM to come from a think-tank background, understands detail and, just as important, knows which wonks to hire.
Especially encouraging was the recognition that complicated taxes are as damaging to prosperity as high taxes. The elimination of the 45p rate makes taxes flatter and simpler as well as lower. This matters enormously. In opposition, the Tories used to complain that, under Brown, the tax guide had grown from 5,000 to 11,000 pages. It now stands at 24,000 pages, and HMRC employs more officials than the NHS does GPs.
Why have we had to wait 12 years? Part of the answer has to do with circumstances. The Lib Dems like big government and, after 2010, the coalition was paying for the global financial crisis. Then came the referendum, then the matronly interventionism of Theresa May, then the Brexity Hezza, then Covid
But the greater part has to do with what supporters call pragmatism and opponents call cowardice. Human beings are naturally change averse, which makes it hard to scrap even the most idiotic regulations. They are naturally loss averse, which means they resent the removal of a benefit far more than they appreciate a tax cut. They are naturally egalitarian, evolved in a hunter-gatherer world in which the size of the pie was, to all intents and purposes, fixed.
So successive governments found it easier to let things lie. Expensive regulations were left in place. Theatrical policies, including the bonus cap and the 45p top rate, were tolerated, because politicians feared bad headlines more than they feared lost revenue. Well, not anymore. On Friday, the low-interest-rate-high-tax consensus that has dominated this century – the Osbrown consensus, let’s call it – was torn to pieces.
So marked was the change that the other side took a while to get its attack lines straight. The shadow chancellor, Rachel Reeves, ended up flatfootedly accusing the Tories of engaging in “trickle-down economics”.
This is one of the silliest lies in our public debate. No economist or politician argues that the best way to help poor people is to give rich people more money to spend on their swimming pools and Lamborghinis. The phrase “trickle-down” was invented by US Democrats as a caricature of what Coolidge’s Republicans were supposed to believe. Nearly a hundred years on, it is still regularly trotted out by Leftists despite no one on the Right ever having advocated it. “Trickle-down” is, in its way, as absurd a conspiracy theory as QAnon.
That, though, has not stopped Labour MPs, Guardian columnists and BBC presenters solemnly intoning the phrase as if it really were what the Tories were trying to do. Behind their criticism is an assumption that the only way to judge the utility of a policy is by its impact on the poor. But, if you think about it, this is nonsense.
Some policies are, quite properly, aimed at helping the poor. Grants to help with high energy bills are in this category as, indeed, is the welfare system. But plenty of policies are judged by different criteria. Should we send arms to Ukraine? Should Shakespeare be on the National Curriculum? Should we cancel HS2? We do not, and should not, look at these issues through the prism of how they affect the worst off.
Most of Friday’s announcements were designed to boost our prosperity as a nation rather than being aimed at any particular group. Yes, poor people will benefit – but they will benefit as British citizens rather than as poor people.
This point cannot be stressed too strongly because it runs against the prevailing analysis. No sooner had Kwarteng sat down than we were seeing those familiar bar charts showing that his tax cuts would be more valuable to higher than to lower earners.
This finding is delivered as if it were a devastating critique of government policy but, taken to its logical conclusion, it becomes an argument against cutting any tax ever. By definition, tax cuts help people who pay taxes more than people who don’t.
Even setting this objection aside, there is a more basic problem with those bar charts – the BBC’s the IFS’s, the Resolution Foundation’s – and it is this. They measure only the direct fiscal impact of a Budget, not its impact on overall prosperity. In other words, they look purely at whether people are now getting more in benefits or paying more in tax, not at whether they are better off.
Think of it this way. Suppose Kwarteng had a magic wand that, with a single flick, would take the poorest 10 per cent of people in Britain and make them rich. The BBC and the rest, using their present methodology, would consider that he had hurt the poor. Why? Because the people in that poorest decile would no longer be eligible for welfare, and would now be paying lots more tax. The wand-wave would therefore count as a regressive Budget.
Now in real life, our brainy Chancellor does not have a wand. But he can do one or two things that, however feebly, mimic its effects. He can, for example, encourage businesses to establish themselves here, investment to grow, firms to hire. He can, in other words, get more people into secure and well-paid jobs. Yet doing so, like waving the wand, shows up in the raw data as harming the poor, because they pay more in tax.
Do we want national prosperity? Or are we so anaesthetised by handouts, so hooked on subsidies, so eaten by envy, that we prefer a Britain that is poorer, provided it is more equal?
Perhaps we really have sunk that low. Then again, people said much the same at the end of the 1970s, a period in many ways similar to the present. Decline seemed inescapable, and the United Kingdom was thought to be stuck with low growth, high taxes and inflation.
Instead, to the world’s surprise, we elected a PM who, though her policies polled badly in isolation, tamed inflation, turned our economy around, let the private sector outgrow the state and won three successive elections. Why assume it can’t happen again?
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