The new Prime Minister, Liz Truss, promised to be a tax-cutting Prime Minister. She has kept her promise. The “mini-budget” announced by the new Chancellor, Kwasi Kwarteng, will introduce some of the biggest tax cuts in a generation. Yet, the caveat is that these tax cuts will not benefit the vast majority of the population as they overwhelmingly benefit the wealthiest individuals in the country.
Following a “trickle-down” economic approach, it is believed by the Conservative government that cutting taxes for the wealthy will stimulate economic growth and that wealth would eventually trickle down from the highest earners to the lowest earners through investment. This is an economic fantasy that has been proven countless times not to work. Instead, the reality is that wealth bubbles at the top of the income ladder.
Even the International Monetary Fund has criticised the idea of trickle-down economics. In a 2015 report, the IMF stated that “when the rich get richer, benefits do not trickle down”. The report then suggested that economic policies “should focus on raising the income share of the poor and ensuring there is no hollowing out of the middle class”. Further to this, the IMF has specifically criticised the UK Government’s budget and urged it to reconsider its plans.
Under the Conservative’s plan, the top rate of income tax will be scrapped. Thus, for those earning over £150,000 a year, their top rate of income tax will drop from 45% to 40%. The Institute for Fiscal Studies, a leading economic think tank, has suggested that this tax cut would mean those who earn over £1,000,000 a year will save £40,000 in taxes.
The only positive for those on a lower income is that the basic rate of income tax will be cut from 20% to 19% and the recent national insurance rise will be reversed. This is a decision that has been supported by Labour.
However, given the current rate of inflation, coupled with stagnant wages and rising living costs, these policies are unlikely to improve the economic conditions of those on lower incomes. It has been estimated that the lowest paid individuals will save a meagre £22.12 a year (contrasted with the aforementioned £40,00+ for millionaires).
Meanwhile, while the cap on banker’s bonuses is set to be lifted, the 120,000 people on universal credit who are in work will risk having their welfare reduced. The Conservatives have argued that individuals must seek higher paid work or work longer hours. These remarks are patronising and arrogantly devalue the work of many, while also ignoring the fact that many simply cannot work longer hours due to other commitments (such as childcare responsibilities or health problems).
Rather than attacking working people in rhetoric and policy, it would be better if the Government supported a high-wage economy, in which workers, regardless of their jobs, are paid a decent wage which can provide them with a decent standard of living.
Taking all of this into account, it is quite clear who this budget is for: it is for the wealthiest individuals in society. In other words, it is a typical Tory budget.
In addition to this budget being disastrous for the working class, it is also disastrous for the economy as a whole. There is a common myth within British politics that has persisted for much of the post-war period. This myth is that the Conservative party is the only party able to competently manage the economy. This myth must be shattered once and for all.
The Conservative party have a track record of economic incompetence, such as the 1992 ERM crisis in which the pound crashed. Now, the pound has once again crashed. The value of sterling against the American dollar dropped to its lowest level in recorded history, with £1 nearly equalling the value of $1.03.
This is disastrous for the everyday person, as lower exchange rates against the dollar will lead to higher costs for importing goods. This higher cost is then placed onto everyday goods and services, thus exacerbating the current cost of living crisis.
As the market reacted with fear to the Government’s plan, the Bank of England, which has operational independence, made the unprecedented decision to buy government bonds temporarily, in an attempt to calm the markets. In criticism of the Conservatives handling of the economy, the deputy leader of the Labour Party, Angela Rayner, amusingly remarked: “Defenders of the free market? The market’s in free-fall”.
The Conservative’s economic approach would be disastrous at any time, but given that the country is currently facing one of the worst cost of living crises in generations, these tax cuts symbolise a government that is uncaring and cruel.
At a time when many people are worried about whether or not they will be able to heat their homes this winter due to rising energy bills, the wealthiest in the country will be able to ravish in their extra thousands of pounds of income gained by tax cuts.
This is not only economically irresponsible but morally irresponsible. A key task of governing a country is not only to effectively manage its economy, but it is also to ensure that the economy provides dignity and a decent standard of living for everybody. The Conservatives fail to do either.
When people are queuing at food banks this winter and then going home to a house they can’t heat, it will be a reflection of a government which is economically incompetent, morally bankrupt and quite simply, uncaring.