‘A reverse Robin Hood” was how the Radio Nottingham presenter Sarah Julian characterised the first major fiscal intervention of Liz Truss’s premiership when the prime minister did an interview round with BBC local radio stations last week. They know a thing or two about Robin Hood in Nottinghamshire, and if Julian’s characterisation of a government taking from the poor to line the wallets of the rich was apt at the time of the interview last Thursday, it has only become more so as ministers have dropped further hints about how Truss and her chancellor Kwasi Kwarteng intend to try to make the books add up.
As we set out in this column last week, the inappropriately dubbed “mini-budget” – it set out the biggest programme of tax cuts in decades – straightforwardly redistributes money from less affluent households to some of the richest people in Britain. Over the last decade, Conservative chancellors have cut back the tax credits and benefits that are so vital to low-paid parents and people with disabilities, even as they handed out generous income tax cuts that have disproportionately benefited more affluent families. Poorer households are consequently in desperate need of a financial boost to help them cope with rising energy, housing and food costs. Instead, alongside a package to freeze energy prices at a level equivalent to £2,500 for the typical household, Truss announced £45bn of tax cuts that would see people with income of £1m a year becoming £40,000 a year better off, without saying how she would fund them. The borrowing required to finance the cuts would saddle a younger generation with decades of debt repayments, and the anticipated increase in interest rates required to cool inflation as a result of this fiscal loosening will further hit lower-income households through higher mortgage repayments and rents.
But, as Truss and Kwarteng were warned by economists and some in their own party, the market reaction to pledging billions of pounds of unfunded tax cuts, just as the government was unveiling a package of energy bill support that could easily dwarf the cost of the Covid furlough scheme, was immediate. The pound plunged against the dollar and other currencies, and last Wednesday the Bank of England had to step in with a £65bn emergency intervention to stabilise bond prices, to protect the viability of pension funds.
This leaves only two options for Truss and Kwarteng: to try to reset market expectations by U-turning on at least some of their unfunded tax cuts, or to try to reassure the markets by moving forwards with further cuts to public spending to pay for them. In the last 48 hours, ministers have made clear that it is this latter course that they intend to take. Simon Clarke, the minister for levelling up, has said there will need to be significant cuts to public spending to pay for this cash bounty for the better off, arguing the UK’s “very large welfare state” amounts to a “fool’s paradise” and needs to be trimmed back to be in “full alignment with a lower tax economy”. There is zero democratic mandate, either for these tax cuts, or for a renewed round of public spending cuts, which the Resolution Foundation thinktank says would need to be on the scale of George Osborne’s original programme of austerity in order to fill the gap. Truss has never won a general election, only a contest in which the tiny, unrepresentative sliver of the electorate who are Conservative party members got a say. The 2019 election manifesto on which she was elected an MP made no mention of multibillion-pound tax cuts for the wealthy, or a huge programme of public spending cuts: it pledged to “level up” the country.
Slashing government spending to fund a huge tax cut for the very wealthiest will widen inequality, push up child poverty and seriously damage Britain’s public services. Achieving this would have to involve cutting NHS, school and childcare budgets, services for vulnerable people and working-age benefits, even as inflation is already eroding budgets – other areas of public spending are simply not large enough to make up the required reduction. Kwarteng has already refused to commit to sticking to Rishi Sunak’s plan to raise benefits in line with inflation as usual, which will mean low-income parents and their children, and people with disabilities, facing intolerable levels of hardship at a time when food bank usage has reached record levels. After decades of underfunding and more than two years of pandemic, the NHS winter crisis was already well under way in September. Headteachers have warned that without help from the government, some primary schools will no longer be financially viable.
This is where the ideological takeover of the Tory party by Brexit hardliners was destined to lead. Brexit was sold to the public as a way of taking back control and reducing immigration. What remained unsaid was that Brexiters like Truss and Kwarteng wanted to use it to slash taxes and regulation to make Britain a more lucrative place for millionaire rentiers and a crueller place for ordinary Britons. Voters would not willingly choose this, so they instead misled the public about their real objectives, and are now pushing through their reverse Robin Hood despite never having won an election on this platform. It is dangerous for British people, and for British democracy. The only people who can currently stop them are Conservative MPs. They must act, and fast.
October 2, 2022 at 11:03AM Observer editorial