Comment

This mini-Budget was a risky breath of fresh air

Kwasi Kwarteng is unashamedly putting wealth-creating enterprise back at centre stage

Chancellor of the Exchequer Kwasi Kwarteng is not afraid to slash taxes to promote growth Credit: Carl Court/Getty Images

In one bound, the Tories have transformed themselves from the fiscal conservatism of the Cameron/Osborne era into a Reaganite show of fiscal incontinence and Thatcherite derring-do economic reform. 

Call it a kind of liberation, if you like, but like all liberations, it carries with it a high degree of risk. Risk that voters will see it as a rich man's charter, and will, as Labour expects, turn against the new regime's tax cutting, deregulatory zealotry. 

And risk that it won't generate the growth the Government hopes for, and will therefore put the public finances on a path to oblivion, requiring extreme austerity at some stage in the future.

But it was also a breath of fresh air after the fiscally constipated Budgets that have ruled ever since the financial crisis – high political and economic risk, no doubt, but a seemingly determined attempt to get the economy out of what Kwasi Kwarteng, the Chancellor, called "a vicious cycle of stagnation" by unashamedly putting wealth-creating enterprise back centre stage.

It didn't contain quite the same degree of pyrotechnics as the Lawson Budgets of the 1980s – the Chancellor has resisted calling it a Budget at all – but all is relative, and compared to what we've seen in recent years, it came somewhere close. The icing on the cake was finally getting the top rate of income tax back to the level Nigel Lawson reduced it to all those years ago.

That rate of tax ruled for more than 20 years between 1989 and 2010, much of that time, as the Chancellor pointed out, under Labour governments, when it became a kind of normality and all but ceased to be a political issue.

Yet post-financial crisis, maintaining a higher top rate took on an almost totemic quality, a badge for the supposedly "fair society" that all politicians were meant to aspire to.

George Osborne began the process of restoring the Lawson consensus, cutting the rate to 45pc, but he didn't dare go further, and even that cut was clawed back in the form of tax rises elsewhere.

Let's be frank about this; abolishing the top rate of income tax immediately benefits only a relatively small group of high earners – around 660,000 at the last count. But it is powerfully symbolic of a tax regime that promises to rediscover the economic need for attracting investment, rewarding aspiration, and turbo charging wealth creation, rather than penalising them.

A quick back of the envelope calculation of the tax cuts the Chancellor announced today puts the cost at around £50bn. 

Together with the £60bn over six months the Government's energy support package is estimated to cost – and possibly quite a lot more over the lifetime of the initiative - that's a mighty big sum to be adding to the Government's medium term borrowing needs. The Budget deficit is going to remain at well above £100bn for at least the next three years.

Nor in themselves will these tax cuts generate the 2.5pc per annum growth the Government is banking on to pay for it all. Unbacked by the sort of additional supply side reforms to planning, immigration the many other barriers to enterprise Kwarteng referred to in his speech, it won't work, and will merely end up busting the public finances.

It is not yet clear the Government has the resolve or the mandate for the sort of reforms it speaks of. Many have tried before, and failed. There was also alarmingly little mention in the Government's plan for growth of spending cuts to help offset the tax-cutting zeal. But this is undoubtedly an encouraging start.