Chancellor Kwasi Kwarteng will set out the government’s economic plans in a mini budget. The focus will be on growing the economy. This is how he will try to do it and who will benefit.
On Friday the new chancellor will set out his economic plans in a statement to the House of Commons.
It’s not an official budget, but Kwasi Kwarteng needs to do a few things in the early days of this government.
First, flesh out the promise of tax cuts that Liz Truss made to the Conservative Party members who elected her as leader and the UK’s prime minister.
“What I’m about as a Conservative is people keeping more of their own money, growing the economy so we avoid a recession. And the best way to do that is lower taxes, but also unleashing investment into our economy.”
Evening Standard
Second, explain how he’ll pay for plans to cap household energy bills at two and half thousand pounds a year and reduce them for businesses over the next six months.
“We understand that how that will translate is savings of around a quarter to a third for businesses like this one in Huddersfield… but think about it, if your bills have gone up threefold, fourfold, fivefold, a 25 to 30 per cent saving won’t even touch the sides.”
BBC Breakfast
And most important for this government, the chancellor needs to come up with a plan for growth, because it wants to get the economy growing by two and half percent a year, which is why Kwasi Kwarteng has reportedly told Treasury officials to focus on that rather than how much money is coming in versus how much is going out.
We already know a lot about what he’s going to say, so here’s what to listen out for.
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It’s important to understand that Liz Truss and Kwasi Kwarteng believe that economic growth is the way to long term prosperity
“To look at everything through the lens of redistribution, I believe it’s wrong. Because what I’m about is growing the economy. And growing the economy is what benefits everybody.”
BBC
This is their guiding principle.
Rather than sharing out the money in the economy by taxing the rich more than the poor, they want to grow it overall, so everyone’s share gets bigger.
One way they’ll try to stimulate the economy is by reversing the rise in national insurance and freezing corporation tax.
Both are designed to encourage spending, but the Institute for Fiscal Studies has said that the poorest three million households in Britain would be as little as 63p a month better off under plans to cut national insurance. Higher earners would benefit more.
Keeping corporation tax at 19 percent is good for business and designed to encourage investment, which could come in the form of higher wages.
The combined cost to the government of those two tax cuts is £30 billion a year, and that’s before you consider this.
“The Times has been told that Liz Truss will announce a radical plan to cut stamp duty in the government’s mini budget on Friday in an attempt to drive economic growth.”
The Times
Stamp duty is the tax levied on the sale of a property. Cutting it would benefit homeowners and encourage more people to move, which could create more opportunities for first-time buyers to get on the property ladder.
But it’s also a big earner for the government, so it’s another cost at a time when it still needs to pay for its massive intervention in the energy market.
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In a series of interviews Liz Truss repeatedly insisted that she was willing to do things that aren’t popular with voters.
Chris Mason: “So you’re willing to do unpopular things if you think it can contribute to a bigger economy?”
Liz Truss: “That’s right.”
BBC
Beth Rigby: “Labour’s policy to tax the energy companies is supported by 68 percent of the public according to polls. You’re prepared to be unpopular aren’t you?”
Liz Truss: “Yes, yes I am.”
Sky News
Reducing national insurance and stamp duty, freezing corporation tax and ruling out another windfall tax means the price of the energy package will likely be met through more government borrowing and less spending elsewhere.
Annual growth of two and a half percent hasn’t been achieved since before the 2008 financial crisis. The risk for the government is that they do things that aren’t popular with voters, like lifting the cap on bankers’ bonuses, whilst also cutting back on spending to allow for tax cuts, but still fail to improve growth.
If that happens, and some of it might be out of their control, then they could pay a hefty price at the next election.
This episode was written by Lewis Vickers and mixed by Patricia Clarke.