This was the best Budget I have ever heard a British Chancellor deliver, by a massive margin. The tax cuts were so huge and bold, the language so extraordinary, that at times, listening to Kwasi Kwarteng, I had to pinch myself to make sure I wasn’t dreaming, that I hadn’t been transported to a distant land that actually believed in the economics of Milton Friedman and FA Hayek.
But Liz Truss and Kwarteng are very much for real, and in revolutionary mood. The neo-Brownite consensus of the past 20 years, the egalitarian, redistributionist obsession, the technocratic centrism, the genuflections at the altar of a bogus class war, the spreadsheet-wielding socialists: all were blown to smithereens by Kwarteng’s stunning neo-Reaganite peroration.
Hardcore, unapologetic liberal Toryism is back. This fiscal statement is in some ways an even bigger deal than that previously greatest of Budgets, Lord Lawson’s extravaganza of 1988, so long ago that my generation cannot remember it. All the taboos have been defiled: the fracking ban, the performative 45pc tax rate, the malfunctioning bonus cap, the previous gang’s nihilistic corporation tax and national insurance raids. The basic rate of income tax is being cut, as is stamp duty, that dumbest of levies. There will be more reforms, more deregulation from a Chancellor explicitly committed to a flatter and simpler tax system.
It wasn’t merely the policies that were astonishingly good: just as remarkable was Kwarteng’s language, the arguments he deployed to explain his decisions, the lucid free-market philosophy from which they emanated. He spoke of the need to bolster incentives, to encourage business investment, to increase work, to reward savings. He explained that this meant that the returns on capital and labour had to be improved. He wants to usher in a new Big Bang in the City and launch dozens of new Canary Wharfs on steroids.
At a stroke of a pen, Britain’s competitiveness, its attractiveness to investors and top talent, has been transformed. Money and jobs will flow in, especially from the Eurozone. Britain’s central pathology is low growth, held back by faulty economic, fiscal, monetary and regulatory policies: higher spending begets higher taxes, which lead to a vicious cycle of even lower growth, and hence yet more taxes, and so on.
Kwarteng is desperate to smash the logjam. His challenge is that the only way to urgently push through a supply-side revolution given the cultural centrality of our welfare state is to borrow a lot more, at least until growth accelerates. This extra deficit - separate from the temporary cost of the energy bailout - should be seen as an “investment” in a new pro-growth infrastructure, including a new tax system, in a manner similar to building roads or nuclear power. But Kwarteng must, sooner rather than later, find meaningful spending cuts, and restrain expenditure growth.
Britain boasts the second lowest debt relative to GDP in the G7: borrowing an extra 1.9pc of GDP a year is tolerable. A bigger challenge is that the interest rate on national IOUs will rise, as they are everywhere, but compounded by the fact that the financial markets, baffled by endless changes of UK Government and ideological u-turns, don’t quite understand what is happening. The Bank of England’s strange behaviour, and its decision not to raise interest rates enough while dumping even more gilts onto the markets, is contributing to sterling’s slump.
Reforms of this order of magnitude should really have happened after the referendum in 2016, or after Boris Johnson became Prime Minister in 2019: with time now desperately short, Kwarteng and Truss must compress a complete overhaul of the economy into just a few months. The question remains: will there be enough time for the stronger growth to materialise? After years of leftist propaganda, including by supposedly Tory governments, will Truss be able to explain herself, to remake the case for low tax, to show how unleashing enterprise and investment will generate the growth we so desperately need?
Yet she was right to gamble everything on radical, sometimes unpopular, policies that she passionately believes are right for our country. Doing nothing would simply guarantee defeat. Now she has a fighting chance to save Britain, and her party, from oblivion.