How the Tories are spinning their mini-budget – and why it won’t work

“It is indicative of where this government’s priorities are that their first fiscal actions have focused on giving the most money not to those who need it most, but those who need it least,” writes Mainly Macro‘s Professor Simon Wren-Lewis of Kwasi Kwarteng’s mini-budget.

We know the headlines, and how awful they are: almost two-thirds of the tax gains go to the richest fifth of the population, with almost half going to the top five per cent; poorer households will get a small amount of this giveaway, but less than is needed to cover the increased costs of essentials (see the image at the top of this article).

The Institute for Fiscal Studies says your income would have to exceed £155,000 before you are better off, and if you earn a million a year you gain £40,000.

The tax cuts and spending plans mean there will be cuts in public spending after the next election, because the Institute for Fiscal Studies and the Resolution Foundation both predict budget deficits that are “not sustainable” – as would the Office for Budget Responsibility, Prof Wren-Lewis reckons, if it had been allowed to publish its post-budget forecast.

It raised borrowing costs and depreciated sterling

This means taxes will have to rise or spending will have to be cut, unless something very beneficial for the public finances turns up. Kwasi Kwarteng has committed himself to reducing government debt relative to GDP in the medium-term, meaning that if these deficit projections turn out to be even roughly right he is going to have to raise taxes or cut spending.

You don’t get to announce the biggest tax cut for 50 years in a deteriorating economic climate without severe implications for future spending.

Just six per cent of the population want lower taxes and lower spending on health, education and welfare, while 52 per cent want the opposite; this is a deeply unpopular policy.

So to the question posed by the headline: how are the Tories trying to make this nightmare look good?

Here’s Prof Wren-Lewis [boldings mine]:

What the government would like you to think is that this is about fairness vs growth. These measures are very unfair, but they say they are designed to increase long run growth so everyone will be better off (just the rich will be a lot better off than the poor). The spin, like the deficit spin that these same politicians lectured us with for the last 12 years but have now abandoned, is a load of nonsense.

There is no relationship between tax levels and prosperity. Worse still… the evidence clearly suggests that increasing inequality at the top reduces growth.

If the markets believed this budget would increase long run growth, sterling would appreciate. Instead the uncertainty created by an unfunded tax giveaway for the better off has led to the cost of government borrowing rising substantially both just before and following the budget, and sterling has fallen against the Euro.

There was only the smallest additional help beyond the price cap for those struggling to make ends meet, and instead more use of sanctions for [benefit] claimants, sanctions which the government’s own research says caused more harm than good [suicides] so they refused to publish it.

Alongside higher energy prices, we have sharply higher food prices which the government is ignoring.

Either the government is blind to the evidence, or they have to pretend it’s all about growth as a cover for the true reason for tax breaks for the rich: their ideology and party donors.

If this government really wanted to increase growth it would make trade with the EU easier, but right now it is doing the opposite.

It would be focusing only on encouraging the energy of the future, green energy, which is now much cheaper than gas, Instead they are encouraging fracking (and saying you shouldn’t worry about small earthquakes) and more investment in getting oil out of the North Sea.

If this government really wanted to increase growth, it would be helping the NHS reduce the number of people not working because they are sick by training more nurses and doctors and paying them more. Instead tax cuts now mean that in the future the NHS, with its record waiting lists, will be even worse than it is now, if it has a future at all.

In fact, Prof Wren-Lewis predicts huge public-sector cuts – which are perhaps the entire point of this exercise:

Cuts in spending that will be far deeper than anything George Osborne did, because UK public service provision is already at rock bottom and in some cases close to collapse.

An economy where the public sector no longer works is an economy that no longer works.

What this budget showed is a Chancellor who not only doesn’t understand this, but intends to make it worse.

Source: mainly macro: A budget that harms everyone except the very rich

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1 thought on “How the Tories are spinning their mini-budget – and why it won’t work

  1. Elijah Traven

    The language used by government and parrotted by their MPs across the country through the regional media isn’t rooted in actuality and has no relationship to reality. It is the language of lunatics who are usually locked up safe and sound in psychiatric hospitals receiving heavy doses of medication. But this gang of misfits and thieves form the government of the country. They believe what they say is true because they say it is true without evidence and certainly not in argument and discussion with those who disagree with them. They barely recognise anyone but themselves and the extremely separated social circles they mix in and born into. They are fanatics, fantasists, fascists. God help England and save us from these rascals and rogues. They are waging war abroad and planning out nationwide serf ports at home where domestic law is abandoned and the people left to the tender mercies of business which sees them as nothing more than a commodity so anything possible can happen to them. The news media in Britain which is the worst in the world in terms of honesty and truth could even mean that those who can’t labour due to ill health or old age can be safely terminated. After all people really didn’t know or hardly knew much of the concentration camps in their domestic living areas such was the high level of the subterfuge of the German Nazi government and the news media black out. Don’t say it couldn’t happen here. It already did on the government programme they called the Liverpool Care Path. The Conservative Party is not a real political party. It comprises and leads the criminal wing of big business. It is a fascist party in all but name and under even the briefest of examination can be shown to be just that. They see us the people as they saw the people of India, Africa and all the other countries they invaded and looted. We are beneath their contempt. The same thinking which infused the empire has been handed down in direct line through family descent to the present day families. Inheritance law makes thia certain. It is this satanic entity composed of around 2 million people who form the apartheid class in Britain . We must liberate ourselves and our land from them just as our compatriots as I think of them did the other occupied territories. Britain is the last colony of empire and this is the only true asset that is left for those monstrous marauders. In that regard compared to what they had they are as weak as shit and ready for the taking.

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