Predictions today’s fiscal event could be biggest package of tax cuts since 1988
Rachel Reeves, the shadow chancellor, will be responding to Kwasi Kwarteng in the Commons today and, in an article in the Financial Times, she gives a flavour of what she is likely to say. Reeves says Liz Truss represents “another zigzag on a path of policy failure” rather than proper change. She says:
Liz Truss wants the British public to believe that she represents change. She and Kwasi Kwarteng even want you to believe they have a new plan. But what they are proposing is just another zigzag on a path of policy failure tracking across the past 12 years of the economy.
Just like Boris Johnson before her, the new prime minister and the chancellor are long-serving cabinet ministers. They are desperate to present themselves as agents of change, so must decry the growth plans they once supported — there have been six since the Conservatives took power in 2010, each announced with great fanfare but with little impact. Instead, the one constant over a decade of Tory government is low growth.
Of course we need a competitive regime, but UK levels are already below France and Germany and would remain so at the planned 25 per cent — yet UK corporate investment is still the lowest in the G7. Businesses have other priorities: in the most recent ONS survey only 2 per cent cited tax as their main concern.
Truss says she will deprioritise redistribution. But research by the IMF has shown that higher income inequality is associated with lower and more fragile growth. It is obvious why. Concentrating income among fewer people — those least likely to spend it and drive the economy forwards — undermines workers’ health and education, the crucial components of a productive workforce.
I am disheartened when I hear the flippant claim that ‘tax cuts always pay for themselves’. They do not. Cutting tax sustainably requires hard work, prioritisation, and the willingness to make difficult and often unpopular arguments elsewhere. And it is hard to cut taxes at a time when demands on the state are growing.