The fiscal statement, the ‘mini-Budget’ that the Government insisted wasn’t, in fact, a Budget at all, came on Friday 23 September and brought with it some significant, unexpected and (in some cases) controversial measures.
Amid preceding uncertainty about if, when, or whether there’d even be a fiscal statement this month, recently appointed Chancellor Kwasi Kwarteng ushered in what he heralded as “a new era” for businesses and families across the United Kingdom.
If you were in any doubt that this wasn’t your typical Budget, or a Budget at all, look no further than the absence of an economic outlook report from the Office for Budget Responsibility (OBR).
The Chancellor emphasised that, in light of this, there would be a fuller package of announcements to come later in the autumn.
But the measures announced last week, he deemed, were actions that needed to be taken without delay to prevent further economic decline.
As recently as August, the Office for National Statistics reported that inflation, as measured by the consumer price index, had risen by 9.9% in the 12 months to August 2022 – far above the 2% inflation target the Bank of England aims for.
UK energy prices, linked to global markets, have been the largest driver of inflation over the last year, following a contraction in supply in Europe after the pandemic and Russia’s invasion of Ukraine.
And, while the relatively small pool of available labour has, along with record vacancies, helped push nominal total pay growth to 5.5%, inflation has wiped out those gains, decreasing real regular pay (excluding bonuses) by 3.9% in the three months to July.
In an attempt to curtail inflation, the Bank of England increased interest rates by 0.5 percentage points to 2.25% the day before the Chancellor took to the dispatch box, increasing the cost of Government, personal and business borrowing. It also made the concerning announcement that the country may already be in recession – and has been for months.
Amid high inflation, a slowing economy, financial burdens on households’ budgets increasing, and more expensive borrowing, Kwarteng delivered his first major speech to Parliament as Chancellor of the Exchequer.
By reversing his predecessor’s elevated National Insurance contributions (NICs), abolishing the additional rate of income tax, scrapping a planned rise to corporation tax, and outlining an extensive package of energy relief measures for both households and businesses, Kwarteng was adamant that the Government would not “apologise for managing the economy in a way that increases prosperity”.
But the emergency measures have been met with scepticism, with the opposition citing that the tax cuts will benefit the richest 1% and make the next generation worse off.
Independent think tanks, too, like the Resolution Foundation, have criticised the measures, saying the package would see the richest’s incomes grow by 2% next year, with 95% of the population getting poorer – and more than two million people falling below the poverty line during the cost-of-living crisis.
Torsten Bell, the foundation’s chief executive, said that “virtually all households” will get poorer next year, as “Britain grapples with high inflation and rising interest rates”.
And the director of the independent Institute for Fiscal Studies, Paul Johnson, said the plans amounted to a “big gamble”, with Kwarteng “betting the house” – something the Chancellor firmly denies.
“What was a gamble, in my view, was sticking to the course we are on”, the Chancellor insisted, expressing that the country needed “a reboot, a rethink” and that he was “being fair” by reducing taxes right across the income bracket.