Comment

Thanks to the Chancellor’s radical plan, Britain is once again open for business

The Tories will be endlessly attacked for this tax cutting Budget. If they are to win the next election, they must remain united

The National Institute of Economic and Social Research said Kwasi Kwarteng’s reforms will lead to positive GDP growth in the last quarter of 2022, cutting the recession and pushing annual growth to 2pc in 2023 and 2024 Credit: Reuters/Jessica Taylor

For years, the Tories promised lower taxes and a bonfire of red tape; for just as long, they tweaked and tucked at the margins but ended up merely reinforcing the social-democratic consensus. Taxes drifted to a historic high, public spending kept increasing, the emphasis was always on redistribution rather than wealth creation and the economy slowly ground to a halt. A party that once proudly stood for prosperity and aspiration had increasingly little of interest to say on economics.

Liz Truss promised to change all of this, and she has already delivered beyond all expectations. Her Chancellor Kwasi Kwarteng’s fiscal statement amounts to a stunning repudiation not just of Treasury orthodoxy but also of the policies of all of her recent predecessors. Taxes are being slashed by £45 billion a year, with the express intention of unleashing the private sector and boosting incentives to invest, spend and work. This is a full-fat supply-side agenda, a rediscovery, in modernised form, of the ideas and ideals that rejuvenated Britain, America and others in the 1980s.

Mr Kwarteng dealt first with energy costs, before declaring his intent to reform the planning system, childcare, immigration, agricultural productivity, business regulations, and digital infrastructure. There was no shortage of purpose, but there was one area where he indicated most clearly how this administration will aim to govern: “And now, Mr Speaker, we come to tax – central to solving the riddle of growth.”

The freeze on corporation tax, cancellations of the National Insurance rise and Health and Social Care Levy are all very welcome, as was the cut to stamp duty. The scrapping of the 45 per cent additional rate of income tax was an explosive move that, at a stroke, tells the world that Britain is open for business again. In doing this, Kwarteng has returned to the previous norm: between 1988 and 2010, under Margaret Thatcher, John Major and Tony Blair, the top rate of income tax had remained steady at 40p. The Chancellor set out a principle to be guided by: “The tax system is not simply about raising revenue for public services, vitally important though that is. Tax determines the incentives across our whole economy.” The subtext was clear: this is a complete break with Gordon Brown’s legacy.

It goes without saying that all of this amounts to a gigantic gamble, for political as well as fiscal reasons. Labour and the Left will dismiss the Government as being pro-rich. It will be essential for the Tory party to remain united, and to make their case to Middle England.

While Labour continues to peddle a declinist, redistributionist narrative – reiterating the tired policies that have left Britain floundering after Covid – the Conservatives committed themselves confidently to an aspirational, growth-oriented agenda. It was telling that Rachel Reeves, the shadow chancellor, could offer little other than to regurgitate Joe Biden’s distaste for “trickle-down economics” – betraying the fact that Labour has little else to offer but pessimism. The modern Left has nothing to say about economic growth.

The other problem is that Britain is having to borrow a lot more, and the financial markets are nervous. This was rammed home after Mr Kwarteng finished his speech, as the pound dropped to a 37-year low against the dollar. Many currencies are falling against the dollar, and every nation’s interest costs are rising, but the UK was hit harder on Friday. The global markets remain down on Britain: they disliked Brexit, believe that the Bank of England has failed especially badly to tackle inflation, and often share in the establishment distrust of tax-cutting governments. 

Mr Kwarteng must remain unfazed. He must sell his package to institutional investors and global decision-makers. He must also, in due course, explain carefully how he will ensure that the national debt gradually stabilises. Eventually, the global technocracy will bow to reality, and realise that Mr Kwarteng’s tax and regulatory reforms are great news for business, investors, financial services and overall economic growth. Even the National Institute of Economic and Social Research believes that the economy will come out of recession more quickly, and that growth will bounce back to 2 per cent next year.

Ms Truss and Mr Kwarteng are rightly determined to implement the kind of radical Conservative programme that has been promised so many times but never delivered. Their agenda will attract fierce criticism from those addicted to redistributive government, but others who can see beyond the tired rhetoric will wish the Government luck, and hope sincerely that it succeeds where its predecessors failed.