Blimey. Kwasi Kwarteng has delivered his first (mini) budget, or fiscal event, only 17 days into his time as Chancellor. And what an event it was. While the reversal in Rishi Sunak’s National insurance rise and cancellation of increasing corporation tax were well trailed, there was one truly unexpected rabbit out of the hat (“more rabbits than Watership Down” were promised by a Whitehall source). 

The top rate of income tax – 45% above incomes of £150,000 – was abolished, meaning everyone earning more than £50,270 will pay 40%. Kwarteng also cut the basic rate of income tax from 20p to 19p from next April, a year earlier than expected. He stated “that means a tax cut for over 31 million people in just a few months’ time” and that “we will have one of the most competitive and pro-growth income tax systems in the world”. 

How will the cuts be funded? Borrowing. A lot of it. The tax cuts amount to £45 billion, the biggest event in five decades, according to Institute for Fiscal Studies’ Paul Johnson. Critics point out that doomed Tory Chancellor Anthony Barber pursued a similar tax cut ‘Going for Growth’ budget in 1972, which ended in disaster. Alongside the energy package, the Chancellor’s moves are set to cost the exchequer £100bn.

The Institute for Economic Affairs (IEA) , Liz Truss’s favourite think tank, loves it.

The markets, investors and traders, are less convinced. As of lunchtime the pound is getting hammered and gilt yields are spiking. Borrowing is becoming more expensive and the Bank of England will, it seems, have to go much higher on interest rates to defend the currency.

Shadow Chancellor Rachel Reeves attacked from another angle, accusing Kwarteng of introducing a package “based on an outdated ideology that says if we simply reward those who are already wealthy, the whole of society will benefit” and “they have decided to replace levelling up with trickle down”. 

Kwarteng should probably be more worried about criticism from his own side. Mel Stride said there was a “vast void” in the statement while another former backer of Rishi. Sunak John Glenn, a former Treasury minister, stated the City was concerned about the “irreconcilable” approach of monetary tightening and fiscal loosening. 

Economically, Kwarteng is making a big gamble. With interest rates raised to 2.25% yesterday – the highest since 2008 – the Bank of England is trying to squeeze inflation and slow down the economy. Kwarteng has gone for a massive stimulus. 

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