One of the UK’s most senior business leaders has warned the chancellor that measures included in his tax cutting Budget will not “suddenly unlock growth”.
Kwasi Kwarteng was accused of “betting the house” on trickle-down economics after he unveiled £45bn-worth of tax cuts and massively increased borrowing in what had been billed as a ‘mini Budget’.
He abolished the top 45p rate of income tax, reversed the rise in national insurance and scrapped a planned rise in corporation tax in a drive to boost economic growth.
But sterling fell to its lowest level since in 37 years amid concerns over borrowing and whether the plans would be enough to stimulate growth.
Tony Danker, the Director-General of the CBI, said a “broad” plan was needed as he pointed out that Friday’s announcement had failed to tackle the issue of skills.
“If they (ministers) are hoping that simply reversing the 6-point corporation tax rise will suddenly unlock growth when actually firms still pay 19 per cent, it is not going to do all the work,” he said. “We need a broad-based plan.”
He welcomed what he described as a “not business-as-usual conversation about growth”, however.
The Resolution Foundation think tank has said the package of tax cuts – the largest since the 1972 Budget – will boost growth in the short-term but force the Bank of England to raise interest rates and see an additional £411bn of borrowing over five years.
The director of the Institute for Fiscal Studies (IFS) also warned the UK is going to be on an “unsustainable path” of borrowing as a result of the package, which could lead to tax rises or cuts to public spending.
Paul Johnson told BBC Breakfast: “The remarkable thing, in a way, is that (the cuts were) done not in a proper budget, that didn’t come with any of the normal forecasts for the economy or indeed public finance forecasts.
“Which is why we’ve produced some, which suggests to us that borrowing is going to be a huge amount higher than the Office of Budget Responsibility or the Treasury thought at the last fiscal event back in March, at well over 100 billion a year into the indefinite future.
“As you heard, the scale of these tax cuts, along with the slowing of the economy, means that unless something remarkable happens, we’re going to be on an unsustainable path in terms of borrowing and, at some point, we’re likely to have to have tax rises to offset some of these cuts, or some cuts in spending.”
Mr Kwarteng has been accused of being ‘Robin Hood in reverse’ after he scrapped the top rate of tax for those on more than £150,000 a year.
Asked if her party would reverse the income tax cut, Labour’s deputy leader Angela Rayner criticised the scrapping of the top 45p rate of income tax.
She told BBC Radio 4’s Today programme: “Well, we’ve said that, you know, the income tax cut is the wrong priority. So, yes, we don’t think that that’s the priority.
“We will set out our tax proposals which will guarantee that those on the lowest wages their cost of living will improve, we will have sustainable growth into the future. We will invest in high-skilled jobs and renewables, so we’re self-reliant on our energy needs.
“We’ll set out our proposals towards the next election, but we’ve been very clear that those with the broadest shoulders should pay more.”
