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The Guardian - UK
The Guardian - UK
Politics
Nadeem Badshah (now);Andrew Sparrow and Graeme Wearden (earlier)

Mini-budget 2022: pound crashes as chancellor cuts stamp duty and top rate of income tax – as it happened

Kwasi Kwarteng Tax Cuts Liz Truss ​​Rishi Sunak Nigel Lawson

A summary of today's developments

  • The markets gave a scathing verdict to the chancellor Kwasi Kwarteng’s unfunded tax cuts and extra spending. Having dropped through $1.10 this afternoon, sterling continued to crash all the way down to a new 37-year low of $1.09. The pound has lost 3.5 cents today, cratering by 3% – on track for its worst day since the market panic of March 2020 when the pandemic hit.

  • Kwarteng announced this morning that the basic rate of income tax would be cut to 19p and the 45% top rate of tax for higher earners abolished except for in Scotland.

  • The threshold before stamp duty is paid in England and Northern Ireland is raised to £250,000 while for first-time buyers it will be £425,000

  • The cap on bankers’ bonuses is lifted and a planned rise in corporation tax is abandoned.

  • An increase in national insurance is reversed and low-tax investment zones will be set up across the UK.

  • The shadow chancellor, Rachel Reeves, said the measures “will reward the already wealthy” and will not help those struggling most with the cost of living crisis.

  • Julian Smith, the former Tory chief whip and former Northern Ireland secretary, said it was wrong for the mini-budget to give such a large tax cut to the very rich.

  • The Institute for Fiscal Studies says the government thinks the tax cut for higher earners will only cost £2bn because, once it takes effect, higher earners will abandon some of the wheezes they have been using to cut their tax liability. The government might be right, the IFS says. But it also says there is a risk the tax cut could cost the exchequer a lot more.

  • The former US treasury secretary Lawrence Summers blasted the economic policies being adopted by Liz Truss and warned that the pound could tumble below parity against the US dollar.

Updated

Kwasi Kwarteng has been accused of delivering a reckless mini-budget for the rich after his £45bn tax-cutting package sent the pound crashing to its lowest level against the dollar in 37 years.

In a high-risk strategy designed to revive Britain’s stagnant economy, the new chancellor announced more than £400bn of extra borrowing over the coming years to fund the biggest giveaway since Tony Barber’s ill-fated 1972 budget.

Kwarteng said tax cuts worth more than £55,000 annually to someone earning £1m a year were part of a new direction for the economy and were designed to help boost growth to 2.5% a year. Some Labour MPs described them as a “class war”.

Here is the exchange between Kwasi Kwarteng, the chancellor, and the BBC’s Chris Mason.

MASON: Do you think the economy is in recession?

KWARTENG: Technically, the Bank of England said that there was a recession, I think it’ll be shallow and I hope that we can rebound and grow

MASON: So you’re acknowledging that there is going to be a recession

KWARTENG: I’m not acknowledging that, no no I said that there is technically a recession. We’ve had two quarters of very little, negative growth and I think these measures are gonna help us drive growth.

MASON: A recession is a recession and you’re saying we’re in recession

KWARTENG: I’m not saying we’re in recession, I’m referring to what the Bank has said. And I think we’re gonna drive growth with these policies

MASON: What’s the difference between a technical recession and a recession?

KWARTENG: There’s a big difference. Technically, the economists say two consecutive quarters, but I think we’re going to grow the economy, that’s what we’re doing, that’s what we’re focused on.

Updated

The chief secretary to the Treasury has also dismissed warnings that the pound could fall to parity with the US dollar as “absurd”.

Chris Philp was asked whether the government would have to resign in this scenario, which economists have warned is possible after the chancellor’s tax-cutting mini-budget.

He told BBC Radio 4’s PM programme: “I’m not gonna get into frankly slightly absurd hypothetical speculation.

“We only came into office two and a half weeks ago.

“We’ve got a job to do … We’re going to make this country an economic success.”

Philp, who has been a government minister for several years, was earlier ridiculed after claiming Kwasi Kwarteng’s announcement had pushed up the value of the pound, moments before it dived to a 37-year low.

Updated

The pound fell below $1.09 on Friday for the first time since 1985 as investors took fright at the prospect of a surge in government borrowing to pay for the sweeping tax cuts in Kwasi Kwarteng’s mini-budget.

Issuing a punishing verdict on the chancellor’s “dash for growth”, traders sent sterling tumbling on Friday in a broad-based sell-off in response to the huge rise in public borrowing required to finance his plans.

The cost of UK government borrowing rose by the most in a single day for at least a decade, while the currency meltdown fuelled speculation that the Bank of England could be forced to launch an emergency rate rise to mend the UK’s battered credibility with global investors.

Updated

The markets will see that the government has a “credible and responsible” economic plan, according to the chief secretary to the Treasury.

Chris Philp was asked about markets’ spooked reaction to Kwasi Kwarteng’s mini-budget, as the pound dived to a fresh 37-year low.

He told BBC Radio 4’s PM programme: “I think when the chancellor sets out his medium-term fiscal plan, which includes getting debt to GDP falling, then I think markets and others will see that we have a credible and responsible plan.”

Philp insisted the government had a plan to drive up GDP by 1% on current forecasts every year. “I have every confidence that the objective we set out, the extra 1%, will be delivered. We’re not hoping, we’ve got a plan to do it.”

Philp rejected the idea that the government has abandoned the cautious approach to the public finances taken by previous Tory administrations.

Updated

Richard Fuller, a Treasury minister, raised eyebrows by arguing that the chancellor’s tax cuts would encourage young people in their 20s earning around £26,000 a year not to go down a “plodding path” in their career but to go into business.

He told LBC said it was about “risk and motivation” and those in their mid 20s should think about being more successful and keeping more of their money, as well as “taking that risk and not doing the plodding normal thing”.

Asked what plodding looks like, he said it was about not “being idle with your cash” and looking for a good return. He said the growth plan was about helping people think about “doing something with your life”.

Fuller said: “Back when I was 25, ironically, it was about the time we had a Conservative government that was looking to cut taxes. What I felt then is that this meant an opportunity for me.

“This meant if it took a risk with the way I wanted to run my career, I didn’t go down the plodding path of just step by step.

That I would have a government that was on my side. It encouraged me to look at things like venture capital and look at ways to grow a business... If you’re 25 and see an opportunity, the government will get out of the way and do what it can to enable you to take up an opportunity.”

Updated

The mini-budget could potentially create a run on the pound, warns Neil Mehta, a portfolio manager at BlueBay Asset Management:

This announcement has caught investors off guard. The program set out this morning is potentially destabilizing to UK government finances, and could even create a run on the pound.

As the pound falls, the Bank of England is probably going to have to react on a falling, depreciating currency, which in itself has an inflationary impact.

Tax cuts will have a medium term inflationary impact, and the Bank of England is going to have to react by raising rates even further. Markets are now pricing that Bank of England rates are going to go up by five and a half percent by next year.

Updated

The New Economics Foundation has also highlighted how the mini-budget will help the rich the most.

Updated

The pound is firmly on track for one of its worst days against the US dollar in recent years.

Today’s 3.2% plunge against the dollar is the biggest slide since the depths of the pandemic in 2020.

It’s one of the top 10 worst days against a basket of currencies since 2004, as Sky News’s Ed Conway shows:

Not as bad as the day after the EU referendum, though…..

Updated

The tumble in the pound, and in government bonds, is so serious that the Bank of England should hold an emergency meeting to raise interest rates to calm the markets, suggests a Deutsche Bank analyst.

George Saravelos, Deutsche Bank’s head of global FX research, told clients that a “large, inter-meeting rate hike from the Bank of England as soon as next week” is needed.

This would “regain credibility with the market”, Saravelos explained in a research note.

He added that a strong signal by the BoE that it was willing to do “whatever it takes” to bring inflation down quickly and move real yields into positive territory would help.

Emergency central bank meetings are rare – usually triggered by financial crises, or a pandemic, not a “fiscal event” meant to boost growth.

But Saravelos writes that the BoE needs to take action to respond to the sharp drops in sterling and gilts.

The Bank is due to hold its next monetary policy meeting in November, having raised interest rate by 50 basis points yesterday.

Updated

On the high street in the leafy suburb of Roundhay, where Liz Truss went to school and her parents still live, there is a sense of frustration, and even anger, at the measures announced in Friday’s mini-budget.

Catherine Brittain, a childminder, was forced to negotiate with her energy provider, which upped her bills from £109 a month to £350. She was able to agree to pay £200 until after Christmas.

She said: “I can’t afford to pay more. I’m worried about the cost of living and at the moment I haven’t passed that on to parents but I’m not sure how much longer I can keep it up.”

Updated

Nearly two-thirds of people think Kwasi Kwarteng’s tax cuts will benefit the rich more, according to a YouGov survey.

Of about 9,400 adults surveyed, 63% said the changes would help wealthier people more, 3% said poorer people, and 9% think both groups will benefit equally.

Some 52% said the chancellor’s measures would be not very or not at all effective at growing the British economy, while only 19% replied very or fairly effective.

Asked about the impact on people’s lives, 28% said they would end up worse off, 34% said the changes would make no difference, and 19% said they will end up better off.

Updated

These are from Paul Krugman, a winner of the Nobel Prize for economics.

Nick Macpherson, the former permanent secretary to the Treasury, tweets that he can’t remember such a strong market reaction to any previous fiscal event, over 30 years of service.

He points out that the pound has lost 2.5% against the Japanese yen, as well as tumbling against 3% the dollar and 1.8% v the euro, while borrowing costs have surged alarmingly.

Updated

Our economics correspondent, Richard Partington, has spotted some interesting reaction:

Ed Davey, the Lib Dem leader, said the mini-budget showed that the Tories were “totally out of touch” with ordinary people. He said:

This budget shows how the Conservatives are totally out of touch with people. Millions of families and pensioners are struggling with soaring bills on energy, on food, on mortgages, and it looks like the Conservatives either don’t get it or don’t care.

We needed a plan to help people, and this isn’t a plan for our economy.

Matt Western, the Labour MP for Warwick and Leamington, is also concerned that the markets have lost confidence in the government.

He asked Kwasi Kwarteng today whether he had fired “the starting gun on a run on the pound” – a well-timed question given sterling’s tumble this afternoon.

In reply, the chancellor accused the opposition of “talking down Britain”, and showing “an extraordinary interest” in the gyrations of markets.

The chancellor said strong growth would improve market sentiment – although that market sentiment has clearly soured badly today.

Updated

Speaking to reporters in Kent, Kwasi Kwarteng also rejected claims that the mini budget was a gamble. He said:

It’s not a gamble.

What is a gamble is thinking that you can keep raising taxes and getting prosperity, which was clearly not working.

We cannot have a tax system where you are getting a 70-year high, so the last time we had tax rates at this level before my tax cuts was actually before her late majesty had acceded to the throne.

That was completely unsustainable and that’s why I’m delighted to have been able to reduce taxes across the piste this morning.

Updated

Kwarteng claims tax cuts in mini-budget 'absolutely fair'

Kwasi Kwarteng, the chancellor, has claimed that the tax cuts in his mini-budget were “absolutely fair”. Speaking on a visit with Liz Truss to a manufacturing facility in Kent, in response to a suggestion the tax cuts were unfair, he replied:

It’s absolutely fair to reduce people’s taxes and to make sure … that people are going to retain more of what they earn.

The path we were on was simply unsustainable.

We couldn’t simply raise taxes indefinitely and hope that we would get prosperity.

Truss did not take questions.

The Institute for Fiscal Studies says almost half of the gains from the personal tax cuts in the mini-budget go to the richest 5%. (See 1.06pm.)

Liz Truss and Kwasi Kwarteng visiting Berkeley Modular in Northfleet this afternoon.
Liz Truss and Kwasi Kwarteng visiting Berkeley Modular in Northfleet this afternoon.
 Photograph: Dylan Martinez/Reuters

Former Tory chief whip says it's wrong to give such huge tax cut to very rich

Julian Smith, the former Tory chief whip and former Northern Ireland secretary, has said it was wrong for the mini-budget to give such a large tax cut to the very rich.

Pound crashes as markets lose confidence in government

This is turning into an absolute rout on the pound, as the markets give a scathing verdict to Kwasi Kwarteng’s unfunded tax cuts and extra spending.

Having dropped through $1.10 earlier this afternoon, sterling has continued to crash….. all the way down to a new 37-year low of $1.09.

The pound has lost 3.5 cents today, cratering by 3% – on track for its worst day since the market panic of March 2020 when the pandemic hit.

Sterling has also fallen by two eurocents, to €1.1240 (the weakest in over 18 months).

Paul Dales of Capital Economics says the plunge in the pound, and in government bonds, shows that the markets don’t believe the mini-budget will deliver sustained, faster growth.

In a note titled “Kwarteng causes carnage”, Dales says:

The surge in gilt yields and the fall in the pound after the Chancellor announced his hefty tax cuts suggests that the markets have concluded the policies will lead to higher interest rates and more shaky public finances rather than a sustained period of faster real GDP growth. We agree.

While the fiscal loosening may make political sense, the size and timing of it doesn’t make much economic sense.

Investors are losing confidence in the UK government’s approach, warns JP Morgan analyst Allan Monks.

Markets expect [UK interest] rates to rise to over 5% - a reaction that cannot be explained by the mechanical impact of today’s fiscal easing alone, and instead reflects a broader loss of investor confidence in the government’s approach.

Updated

Here are five stand-alone analysis articles about the mini-budget that are particularly worth reading.

Andrew Marr in the New Statesman says this package is the logical consequence of Brexit. He says:

I’ve said before and I say again: the overall strategy might work. A giant, no-holds-barred drive for growth, with little focus on the environment and none on fairness, might produce such a surge in investment, employment and tax revenues that by the next election voters will turn again to the Conservatives.

The risks, however, are immense. I spoke to one of Truss’s ministers who was not in the chamber for the Chancellor’s statement because they thought their face would give away their feelings. “There’s just no coherence,” I was told. “This is, by my calculation, the fifth different Conservative growth policy in recent years. We’ve had David Cameron and sharing the proceeds of growth; we’ve had George Osborne and austerity; we’ve had the panic after Brexit and Theresa’s technocratic tinkering; we’ve had Boris’s spend-spend boosterism; and now this. So far, nothing has worked” …

In one way, it is all the honest and open consequence of some of those earlier Tory policy shifts. It’s the consequence of Brexit. Remember that there was never any point in leaving the EU to carry on doing things more or less as if we hadn’t. That led to popularity of the phrase “Singapore on Thames”, an extension of the thinking of Margaret Thatcher in her Bruges-speech phase, which has been much argued about ever since. We are nearer than ever before to experiencing what that vision is like in real life.

Sam Coates at Sky News says it not inevitable that the mini-budget is good for Labour. He says:

Any outcome is now possible: petri dish economics outlined today could end as a colossal failure, with investors fleeing Britain amid spiralling toxic inequality.

But equally, the big new dividing lines set out today could trap opposition parties into making unpopular arguments about the politics of envy with little equivalent vision on growth and aspiration and no cash anyway to pay for their own plans. Today is not automatically a day for the Labour Party to cheer.

Robert Peston at ITV News says he thinks the mini-budget has made an election next year more likely. He says:

[This] for better or worse, is the first UK government to properly face up to the logic of Brexit, which is that it was only worth doing if the economic governance of the country was to be radically changed.

That means, in a nutshell, we’ll soon know whether Brexit was the triumph claimed by its proponents or a disaster …

Kwarteng and Truss are rolling the dice, in a right-wing libertarian way, to endeavour to make a success of Brexit.

My own hunch is that the stimulus they’ve announced will spark a sharp economic bounce next spring, after a grim winter.

But it may not be a sustainable long-term boom.

My hunch is that Truss will therefore give serious thought to going to the country in a general election a year earlier than she’s said, next autumn, just in case her boom fizzles out.

Larry Elliott at the Guardian says this is is a triumph for rightwing thinktanks. He says:

In effect, the mini-budget was a triumph for free-market thinktanks, such as the Institute for Economic Affairs and the Adam Smith Institute, which are true believers in the idea that low-tax, light-touch regulation, small-state economies are not just good for the rich but good for everyone.

That conviction is going to be tested to the limits in the months ahead. Britain has inflation at close to 10% and to the extent it boosts demand, the mini-budget will add to inflationary pressure. It will do nothing to discourage the Bank of England from continuing to raise interest rates.

Paul Waugh at the i says Reaganite economics might not work in the UK.

In fact, given the massive increase in borrowing his plans entail, this prospectus was more like that of former US President Ronald Reagan than Margaret Thatcher. Reagan slashed taxes for the wealthy, let his budget deficit rip and heralded a golden glow of growth that allowed him to boast it was “morning again in America”.

The biggest problem for Kwarteng and Liz Truss is that, in case you missed it, Britain is not America. Our currency lacks the dollar’s mighty strength, our productivity is nothing like the US’s and after Brexit we are very much on our own in the global race.

And here is the Guardian Panel verdict on the mini-budget, which is also well worth reading. It has contributions from Polly Toynbee, Miatta Fahnbulleh, Katy Balls, Nick Butler and James Perry.

Pound may tumble below $1 on ‘naive’ UK policies, warns former US Treasury secretary

Former US Treasury Secretary Lawrence Summers has blasted the economic policies being adopted by Liz Truss, and warned that the pound could tumble below parity against the US dollar.

Summers gave a blistering condemnation of the UK government, speaking on Bloomberg Television’s “Wall Street Week” with David Westin.

“It makes me very sorry to say, but I think the UK is behaving a bit like an emerging market turning itself into a submerging market.

“Between Brexit, how far the Bank of England got behind the curve and now these fiscal policies, I think Britain will be remembered for having pursuing the worst macroeconomic policies of any major country in a long time.”

Summers, who was Secretary of the US Treasury from 1999 to 2001, said he wouldn’t be surprised if the pound eventually gets below a dollar, if the current path is maintained.

He added:

This is simply not a moment for the kind of naïve, wishful thinking, supply-side economics that is being pursued in Britain.”

Bloomberg has the full story: Summers Warns Pound May Tumble Past $1 on ‘Naive’ UK Policies

Updated

IFS says abolishing 45% rate of income tax could cost 'significantly more' than the £2bn Treasury says

Here is a good question from below the line.

And here is the answer, from the Institute for Fiscal Studies briefing. It says the government thinks the tax cut for higher earners will only cost £2bn because, once it takes effect, higher earners will abandon some of the wheezes they have been using to cut their tax liability. The government might be right, the IFS says. But it also says there is a risk the tax cut could cost the exchequer a lot more.

The IFS explains:

The government says that cutting the top rate from 45% to 40% will cost about £2 billion per year. If no-one increased their declared taxable income in response to the change, we estimate that it would cost about £6 billion per year: hence, the government is assuming that roughly two-thirds of the mechanical reduction in revenue is recouped due to behavioural responses. That looks like a plausible estimate, but the main thing to emphasise is the large uncertainty around it: it is not implausible that it will cost significantly more than £2 billion. It might plausibly cost nothing at all.

Updated

Why Scotland has power to keep 45% top rate of tax, but not Wales

The Labour-led Welsh government will be forced to accept the decision by Kwasi Kwarteng to abolish the 45p top rate of income tax next year, because its tax powers don’t allow it to diverge greatly from Treasury decisions.

Wales was given modest powers to change the UK government’s income tax rates from April 2019, but only by around 10p. It cannot keep tax bands which are abolished by the Treasury.

So despite the furious response to Kwarteng’s reform from Mark Drakeford, the Labour first minister, around 6,000 wealthy Welsh tax payers currently paying the top rate will benefit from the Conservative chancellor’s policies.

Scotland briefly had similar powers too but, in the wake of the Scottish National party’s landslide election wins in 2011 and 2015, those dramatically improved. Holyrood now sets its own tax rates and bands, and unlike the senedd in Cardiff will be allowed to keep its top rate of income tax next year.

That is expected to fuel Welsh demands for similar tax powers to Scotland’s. The Welsh programme for government says it will “make the case for clear and stable tax devolution for Wales,” as part of moves it wants to see towards a fully federal UK.

The senedd will be able to moderate the remaining basic and higher rates if it wishes next year. The UK government’s income tax rates are cut by 10p for Wales, with the Treasury sending all the money it collects in Wales to Cardiff. The senedd then sets its own additional tax on top of that, and collects those proceeds itself. In every Welsh budget since 2019, the senedd has matched the income tax rates set by the UK government.

The Chartered Institute of Taxation said that if the senedd chose not to repeat the chancellor’s propose tax cuts next year, someone in Wales earning £27,850 would pay £153 more in income tax than in England; someone earning above £55,000 would pay £377 more.

This is from my colleague Rafael Behr, commenting on a tweet from Lord Ashcroft, the former Conservative party deputy chairman.

This tweet from Chris Philp, chief secretary to the Treasury, this morning has not aged well:

Retailers have welcomed the government’s decision to reintroduce tax-free shopping in the UK for global tourists. Nigel Keal, chair of the UK Travel Retail Forum, said:

This is a fantastic announcement by a government that has been clear from the start of its intention to put aside Treasury orthodoxy and find new ways to generate growth for the UK economy and industries.

When the previous government removed tax-free shopping as a part of Brexit, the effects on a travel sector already struggling with the Covid pandemic were substantial.

Conor Murphy, the Sinn Féin finance minister at Stormont, has described the mini-budget as “Thatcherite on steroids”. He said:

The measures provide tax breaks for the super wealthy and little else for anyone else in this crisis.

For that to be presented as some sort of intervention which will assist people who are facing a real crisis, whether in homes or businesses, I think is absolutely ludicrous and I think people will really struggle in the time ahead.

Asked what he thought about the confirmation that 40 investment zones are to be created with tax breaks for businesses, Murphy replied:

It is a distraction announcement in the middle of a Thatcherite on steroids budget announcement.

Pound falls through $1.10

The pound just tumbled through the $1.10 mark against the US dollar, for the first time since 1985, as anxiety over the mini-budget grows.

Sterling fell as low as $1.0997.

The pound vs the US dollar
The pound vs the US dollar Photograph: Refinitiv

Updated

The Institute for Fiscal Studies has now released its full analysis of the mini-budget. In his summary, Paul Johnson, the director, says:

Today, the chancellor announced the biggest package of tax cuts in 50 years without even a semblance of an effort to make the public finance numbers add up. Instead, the plan seems to be to borrow large sums at increasingly expensive rates, put government debt on an unsustainable rising path, and hope that we get better growth. This marks such a dramatic change in the direction of economic policy-making that some of the longer-serving cabinet ministers might be worried about getting whiplash.

Newspapers always like to present budgets in terms of winners and losers. Here is Johnson’s very basic guide.

Updated

People living in the London and the south-east of England will see significantly larger gains from the changes to income tax and national insurance contributions than the rest of the country.

The IPPR thinktank has calculated that Londoners will see double the income growth compared with households in Northern Ireland (because the capital is home to many more top-end taxpayers).

This puts the government’s levelling up commitments at “serious risk”, it says.

Impact of changes to income tax and national insurance contributions

Henry Parkes, a senior economist at IPPR, said:

This mini-budget was a maxi-boost for the richest, and shows a government staggeringly out of touch with lower and middle earners. As the country grapples with a cost-of-living crisis, soaring energy bills and high levels of inflation, tax cuts for millionaires should not be the priority.

“Worryingly, these cuts will also undermine the levelling-up agenda. Families across Wales, Northern Ireland and the north of England will feel more left behind than ever.

If the government really wants to help ordinary people, then they would be better off investing in what the economy actually needs – better health, education and skills.

The impact of changes to income tax and national insurance contribution by decile

Updated

Plaid Cymru have described the mini-budget as morally questionable and economically irresponsible. Ben Lake, the party’s Treasury spokesperson, said:

The chancellor’s statement today was about supporting those on the highest incomes. Households and businesses across Wales are facing a grim winter of unaffordable bills and soaring inflation, and the government’s response is to engage in fantasy, trickle-down economics to please the super-rich.

As rural households are offered the paltry sum of £100 to cover their energy bills, the top rate of income tax is being abolished and the limit on bankers’ bonuses is being scrapped. That is not just morally questionable, it is economically irresponsible.

Updated

Experts claim mini-budget measures will not stimulate growth by as much as Kwarteng expects

Kwasi Kwarteng, the chancellor, has said government economic policy should focus “entirely on growth”. He wants to get the trend rate of growth up to 2.5%, and the measures in the mini-budget were all supposedly focused on this aim.

But the Treasury has no proof that its measures will achieve this (see 11.15am), and many experts think they won’t.

Capital Economics, a consultancy, thinks the mini-budget package will not make a big difference to the economy’s potential long-term growth rate.

And the Tony Blair Institute, a thinktank, says much the same. In its analysis, it says:

The chancellor’s plan for growth is unlikely to have a measurable impact on the size of the economy and any short-term boost is set to be neutralised by the Bank of England.

Returning the tax system broadly to where it was in 2021 is not going to stimulate long-term growth if it wasn’t succeeding before. Had it been allowed to make an assessment, based on its past pronouncements, it is likely the OBR would have foreseen a long-tun boost to the economy of well below 0.5% from the corporation tax cut.

Like Capital Economics, the Tony Blair Institute also thinks the measures will result in interest rates going higher than they otherwise would have done (0.6 percentage points higher, the institute says).

Updated

NIESR: Interest rates to hit 5% next year due to inflationary measures

The tax cuts announced today, and the energy price freeze, could drive UK interest rates over 5% by next September, the National Institute of Economic and Social Research says.

That’s more than double their current levels (2.25%), and would force up the mortgage repayments of millions of borrowers.

NIESR warns that the Bank of England will be forced to tighten monetary more aggressively, because the mini-budget will be inflationary.

They say:

The announced energy price guarantee has taken 2 percentage points off the peak in inflation but, potentially, lengthened the time it will take inflation to fall back to its 2% target.

And with inflation high and rising, we expect the Monetary Policy Committee of the Bank of England (MPC) to continue raising interest rates from the 2.25% rate announced yesterday to 5% by the end of September of next year.

Forecast for UK interest rates
Forecast for UK interest rates Photograph: NIESR

The financial markets are also indicating that BoE base rate could rise over 5% next summer.

NIESR has also calculated that the energy support guarantee, together with the tax cuts announced today, will shorten the UK recession.

It now expects the economy to grow in the fourth quarter of this year, after contracting in Q2 and Q3, and then grow by 2% over 2023-24.

Updated

The Liberal Democrats say the mini-budget was “an admission of failure”. This is from Sarah Olney, the party’s Treasury spokesperson:

This statement was an admission of failure from a Conservative government that is totally out of touch with the British people. It is not a plan, but a recipe for disaster that will leave families suffering from soaring prices while banks and oil and gas companies rake in huge profits.

Instead of a real plan to grow the economy, the Conservatives are reheating the same old failed policies and lifting the cap on bankers’ bonuses.

Handing billions of pounds of tax cuts to banks and multinational companies will do nothing to help people get a GP appointment when they need it, give our children a better education; and make our streets safer.

Updated

The Institute for Fiscal Studies also says that, even though Liz Truss and Kwasi Kwarteng are believers in low taxation, their cuts would still leave taxation as a share of GDP at its highest sustained level since the 1950s.

Updated

Government on course to miss its main fiscal targets, says IFS

If the Office for Budget Responsibility had been allowed to produce a new economic forecast today, it would have said whether the government was on course to meet its fiscal targets.

The OBR has been silenced, for now, but the Institute for Fiscal Studies, which has similar analytical firepower to the OBR, has looked at the figures and said the government is on course to miss its two main targets – that debt should be falling as a percentage of GDP by year three of the forecast, and that the current account should be in balance by year three.

Updated

What mini-budget income tax changes mean for Scotland and Wales

The Scottish and Welsh governments are under pressure from the Conservatives to match Kwasi Kwarteng’s tax cuts for the rich, with the Tories claiming they will stimulate growth and competitiveness.

None of the chancellor’s changes to income tax rates and bands, nor his changes to stamp duty, will apply directly to Wales and Scotland as both devolved governments set income tax and property sales taxes themselves.

But under the complex deal with the Treasury, under which income tax powers were devolved, Scotland and Wales are entitled to compensation from the UK government for the effects of tax cuts in England and Northern Ireland.

The Scottish government will receive around £600m and Wales about £70m once the cuts take effect: that will put both governments under pressure from some quarters to use that money to match Kwarteng’s cuts. Scotland’s top income tax rate is presently 46p.

Liz Smith, the Scottish Tories’ finance and economy spokesperson, said:

It is wrong that Scots already pay higher tax than their counterparts in the rest of the UK and, unless the SNP match these tax cuts, that gap is going to widen, which will further hamper Scotland’s already poor productivity and competitiveness

The Chartered Institute for Taxation said that if Scotland’s income tax rates are not changed in next year’s Holyrood budget, someone earning £27,850 a year would pay £152.80 more in Scotland; someone earning £200,000 would pay £6,045.80 more. That would lead to “significant divergence” in the tax regimes in force across the UK, it said.

Similar differences will emerge in Wales.

Philip White, director of the Institute for Public Policy Research Scotland, urged ministers in Edinburgh to use the extra money to improve the finances of the poorest, and not the rich. He said:

The Scottish government has a clear opportunity to strike a different course. At a time of crisis, and with ambitions to tackle child poverty and reduce emissions, it must use its upcoming budget wisely by rejecting regressive tax cuts and driving a more progressive approach.


Updated

The FT’s Jim Pickard suggests that yesterday’s fracking announcement from Jacob Rees-Mogg may have been a “bait and switch” operation to conceal the fact that the government sees onshore wind as a better solution to the energy crisis than shale gas. (See 1.23pm.) Many Tory hate onshore windfarms, while some of them are very pro-fracking.

Torsten Bell, chief executive of the Resolution Foundation, has welcomed the move.

Kwarteng set to remove de facto ban on new onshore windfarms

Kwasi Kwarteng looks likely to lift a de facto ban on new onshore windfarms after the government said it would bring planning consent into line with that for other infrastructure.

It has been very difficult for onshore windfarms to get planning permission since David Cameron put in place a tough consent regime in 2015. Earlier this year Kwarteng pushed for the restrictions to be lifted but he encountered cabinet opposition.

The regime will now be loosened, with the chancellor’s growth plan stating:

The government will unlock the potential of onshore wind by bringing consenting in line with other infrastructure. The UK is a world leader in offshore wind, with 8GW of offshore wind currently under construction. By 2023 the government is set to increase renewables capacity by 15%, supporting the UK’s commitment to reach net zero emissions by 2050.

Although the government has trumpeted its decision to allow firms to explore fracking further, few experts think it is likely to produce much gas in the near future. Unblocking the potential for onshore wind projects could be a much quicker and more productive way of boosting electricity supplies and helping to bring down prices.

Some Conservative MPs oppose windfarms as a blight on the landscape but public attitudes are much more supportive of the technology.

Jess Ralston, a senior analyst at the Energy and Climate Intelligence Unit, said:

The ban on onshore wind – which around eight in 10 people support – has been a major anomaly in British energy policy given it’s both cheap and popular with the public. So a decision to lift the ban suggests the new government has listened to the experts and understands building more British renewables reduces our reliance on costly gas and so brings down bills.

Scottish and Welsh governments say mini-budget will deepen inequality

The chancellor’s sweeping tax cuts for wealthy will deepen inequality and do little to help those in greatest needs by “embedding unfairness”, the Scottish and Welsh governments said.

John Swinney, Scotland’s finance secretary, and Rebecca Evans, the finance minister for Wales, accused Kwasi Kwarteng of protecting the rich at the expense of the poorest families, now struggling with soaring inflation and fuel costs.

Both devolved governments – which have their own, independent policies on income tax and house sales taxes – signalled they are unlikely to follow the chancellor’s hand-outs for the rich in their own budgets next year. Evans said:

Today’s announcements show the UK government is heading in a deeply worrying direction.

Instead of delivering meaningful, targeted support to those who need help the most, the chancellor is prioritising funding for tax cuts for the rich, unlimited bonuses for bankers, and protecting the profits of big energy companies.

Swinney added:

The chancellor’s statement today will provide cold comfort to the millions of people across Scotland who have been looking for the UK government to provide support for those that need it most. Instead we get tax cuts for the rich and nothing for those who need it most.

Kwarteng’s decision to lift the starting rate for income tax to £14,732, lowering the basic rate to 19p, his abolition of the top 45p income tax rate and changes to stamp duty rates from next April, will not directly affect Scotland and Wales.

Neither the left of centre Scottish National party and Scottish Green government in Edinburgh, nor the Labour government in Cardiff, are likely to abolish their top tax rates. In Scotland, the top rate is 46p for those earning over £150,000.

But they will now face pressure to lift the starting rate to match Kwarteng’s new starting rate and higher basic rate threshold, which increase incomes for tens of millions of employees in England and Northern Ireland.

The chancellor’s reforms mean the Scottish government will receive around £600m and Wales around £70m in additional funding from the Treasury. The fiscal framework rules that set up their devolved tax regimes require the Treasury to compensate the devolved governments for any tax cuts in England, to help balance out the fiscal effects of those changes.

Almost half gains from tax cuts in mini-budget go to richest 5%, who gain £8,560 on average, Resolution Foundation says

One of the most striking figures in the Resolution Foundation analysis of the mini-budget (see 12.37pm) is the revelation that almost half of the gains from the tax changes will go to the richest 5% of people, who will gain £8,560 on average. It says:

The tax cuts confirmed today largely reverse those introduced by Rishi Sunak in recent years, but with a particular focus on higher income households driven by the reversal of the rise in national insurance and scrapping of the 45p rate of income tax. Someone earning £200,000 will gain £5,220 a year, rising to £55,220 for someone earning £1 million. Someone earning £20,000 will gain just £157.

Almost two-thirds (65 per cent) of the gains from personal tax cuts announced today go to the richest fifth of households, who will be better-off on average by £3,090 next year. Almost half (45 per cent) will go to the richest 5 per cent alone, who will be £8,560 better off. In contrast, just 12 per cent of the gains will go to the poorest half of households, who will be £230 better off on average next year.

UPDATE: Here is the chart that illustrates how the richest 5% gain most.

Updated

Union leaders condemn plan to place new restrictions on strike action

And union leaders have also criticised the proposals to place new restrictions on strike action.

In his speech Kwasi Kwarteng said:

At such a critical time for our economy, it is simply unacceptable that strike action is disrupting so many lives.

Other European countries have minimum service levels to stop militant trade unions closing down transport networks during strikes.

So we will do the same.

And we will go further.

We will legislate to require unions to put pay offers to a member vote, to ensure strikes can only be called once negotiations have genuinely broken down.

In response Mick Lynch, general secretary of the Rail, Maritime and Transport (RMT) union, said:

We already have the most severe anti-democratic trade union laws in western Europe and this latest threat will rightly enrage our members.

The government should be working towards a negotiated settlement in the national rail dispute, not seeking to make it even harder to take effective strike action.

RMT and other unions will not sit idly by or meekly accept any further obstacles on their members exercising the basic human right to withdraw their labour.

And Manuel Cortes, general secretary of the TSSA, said:

Unions are democratic organisations and industrial action only occurs as a last resort and after a postal ballot of members which also includes having to meet undemocratic thresholds.

Frankly, having to ballot our members on pay offers before they can take industrial action will not make a blind bit of difference.

If the offer is rubbish, it will still be rubbish whether our elected workplace reps have consulted our members on it or a ballot has taken place.

This new Tory proposal will serve only to elongate disputes and generate greater anger among union members. It will do precisely nothing to encourage employers to come to the negotiating table with realistic offers.

Union leaders have condemned the mini-budget as “a budget for the rich”.

The Unite general secretary, Sharon Graham, said it was a budget for the rich, big business and the City.

The Unison general secretary, Christina McAnea, said it was “an all-out offensive to make the wealthiest even richer”. She added:

In the middle of a huge cost-of-living crisis, this isn’t the time for economic experiments that are doomed to fail.

There are masses of essential jobs that need filling. The best way to deal with 300,000 vacancies across health and care is to give staff a wage rise that tops inflation.

Threats to unions are attacks on employees simply trying to win better pay. Choosing to side with city bankers over struggling families queueing at food banks won’t go down well with all those feeling deep despair.

Resolution Foundation also cautions that the large increase in borrowing to fund the mini-budget will also mean higher interest rates, leaving the longer run level of GDP largely unaffected.

The level of growth, or depth of any recession, in the years ahead will be driven far more by the path of energy prices than the level of taxation – with countries opting for both higher (Germany) and lower (US) tax levels outgrowing the UK economy over the past 15 years.

Resolution: UK to borrow extra £411bn over next five years

Kwasi Kwarteng’s tax cuts – the biggest in 50 years – will help to drive up borrowing by £411bn over the next five years, the Resolution Foundation have calculated.

Resolution’s early analysis of the mini-budget has found that it will boost growth in the short-term but also lead to higher interest rates.

Resolution has also worked out that almost half of the personal tax cuts confirmed today will go to richest 5% of the population, who will be £8,560 better off.

Someone on an income of £1 million will receive a tax cut worth £55,220 next year, the thinktank has worked out.

In contrast, just 12 per cent of the gains will go to the poorest half of households, who will be £230 better off on average next year.

Resolution has calculated that the deterioration of the economic outlook since March, and additional packages of energy support, are estimated to have increased borrowing by £265bn over the next five years.

Tax cuts of £146bn raise that to £411bn over the next five years.

Resolution explains that this will break the UK’s fiscal rules:

While extra borrowing is greatest this year (£130 billion) given the scale of energy bill support, the permanence of the tax cuts combines with higher interest rates and weaker growth to mean that the £30 billion of headroom the previous Chancellor maintained against his fiscal rule of having debt falling as a share of GDP has been blown through twice over by 2026-27.

Torsten Bell, Chief Executive at the Resolution Foundation, said:

“This may not have been a Budget, but the Chancellor has certainly blown the budget with the biggest package of tax cuts announced since the ill-fated Barber Budget of 1972. His decision to combine the largely unavoidable higher deficit caused by rising energy prices and interest rates with permanent tax cuts will drive up borrowing by over £400 billion in the coming years. No Chancellor has ever chosen to permanently increase borrowing by so much.

“Without significant cuts to public spending, debt will be on course to rise in each and every year. This is not what sustainable public finances look like. Every scrap of Treasury orthodoxy has been torn up.

“While the Energy Price Guarantee will do an excellent job of softening the living standards squeeze this winter for rich and poor households alike, today’s tax cuts will do little to boost the incomes of those on low and middle incomes. Someone on an income of £1 million will receive a tax cut worth £55,220 next year.

“This borrowing surge will mean higher GDP this winter, but it will also mean higher interest rates as the Bank of England aims to suck out the boost to demand the Chancellor has provided. Even those who believe lower taxes will make a major difference to growth should be cautious about putting all their eggs in that basket. After all, the tax take will remain at levels not sustained since the 1940s – even on these plans.”

Updated

These are from the Green party MP Caroline Lucas.

This is from Ashwin Kumar, a modelling expert and professor of social policy at Manchester Metropolitan University.

Kwasi Kwarteng’s mini-budget has been compared to the budget presented by Anthony Barber, Tory chancellor in 1972.The resulting ‘Barber boom’, then bust, was deemed reckless. Gripped by sluggish growth and low investment, the UK decided to solve its problems by embarking on a “dash for growth” – spending big and cutting taxes. Barber set growth targets of 10% for the following two years and shaved £1 billion off income tax. His budget did grow the economy but inflation surged. This was worsened by the hike in oil prices following the 1973 Yom Kippur War. Within 18 months Barber did a U-turn, bringing in a deflationary budget, and Edward Heath’s government was forced into introducing an incomes policy (wages freeze).

This is how the Guardian reported it at the time.

Barber boom budget coverage
Barber boom budget coverage Photograph: Guardian

Around 660,000 top earners will gain £10,000 on average from abolition of highest rate of income tax, Treasury admits

The Treasury acknowledged after the budget that around 660,000 of the highest earners taking home more than £150,000 a year will benefit from the scrapping of the 45p rate, getting back on average £10,000 a year. The overall costs of the measures are forecast to be around £2bn.

The Treasury was asked why it could not produce Office for Budget Responsibility forecasts, and claimed it would not be able to publish full forecasts in time. It admitted there were no forecasts for how much the growth plan would boost growth, or when Kwarteng hoped to reach the 2.5% target. He is reviewing his fiscal rules, but these will not be set out at this stage. They continued to insist it was not a budget, so therefore was not accompanied by the traditional distributional impact showing how the measures will affect both rich and poor.

A Treasury spokesperson said he “disagreed” that it was a budget for the rich or that it was “trickledown economics” but the aim was that “growing the economy benefits everyone”.

Conservative backbenchers gave an extremely muted response to Kwarteng, unusually refraining from cheering or banging their seats behind the chancellor. Several Tory MPs told the Guardian they were worried about the political implications of giving tax cuts to the rich, while providing little help for most of the population with thecost of living beyond the 1p cut in income tax.

In contrast, Labour MPs were both outraged by the measures and buoyed by the idea that voters would reject the Tories, with one shadow cabinet minister saying they thought it would “go down like a bucket of sick” in the Red Wall.

Updated

The selloff in the pound is gathering pace – sterling is down two cents against the US dollar.

At just $1.105, sterling is getting worryingly close to the $1.10 level.

The pound has also shed a eurocent against the euro to €1.132 – this sterling slump isn’t just about the strong dollar.

Neil Wilson of Markets.com says there is a “fire sale of UK assets” that is “absolutely horrible to watch”, as UK government bonds prices tumble too.

The reaction in the bond market to the misnamed mini-Budget (it was anything but mini!) is striking with yields surging after the chancellor unveiled sweeping tax cuts that abandon any semblance of fiscal discipline.

It means more borrowing and more borrowing costs. This is not the reaction any chancellor wants from a budget but what else could he expect?

The UK’s FTSE 100 index of blue-chip shares is also under real pressure, down over 2%.

It has just fallen through 7,000 points for the first time since June, with European stock markets also being hit by fears of a looming recession.

Our Business liveblog has more details:

Campaigners condemn mini-budget as 'hammer blow' to the poor

Campaigners and charities have described the mini-budget measures as a ‘hammer blow’ to the poor.

Becca Lyon, head of child poverty at Save the Children, said:

The prime minister said she would deliver on the cost-of-living crisis. Instead, the UK government has delivered tax cuts to help the richest and a hammer-blow to low-income families.

The chancellor has prioritised bankers’ bonuses over helping vulnerable children through the cost-of-living crisis, whose hard-working parents face impossible choices.

Today’s announcements overwhelmingly benefit the country’s wealthiest households, meanwhile almost four million children risk going cold and hungry this winter.

Alison Garnham, chief executive at the Child Poverty Action Group, said:

Today was a vital opportunity to provide reassurance and support to those who need it the most - but instead the Government risks a collision with reality, and the four million kids currently living in poverty in the UK will be forced to pay the price.

Imran Hussain, director of policy and campaigner at Action for Children, said:

If the new chancellor has money to spend on tax cuts for those who are relatively better off, then he has the money to spend throwing a lifeline to low-income families who are desperately struggling with the cost-of-living crisis. Many now face a bleak Christmas.

Whilst the energy price guarantee will help offset the near apocalyptic rises that had been predicted, it doesn’t address the mounting pressures families face with food, fuel, housing and other costs that continue to climb.

And Mark Russell, chief executive at the Children’s Society, said:

Changes to the tax system right now are barking up the wrong tree … We need to see far more direct support for families bearing the brunt of the cost-of-living crisis.

In the Commons MPs, particularly Tory MPs, sometimes respond ecsastically when they hear a chancellor from their party deliver a budget that they think will be popular. What was notable about today was that Conservative backbenchers did not respond like that. Some of them did respond very enthusiastically (“How refreshing to hear some Conservative policies at last,” said Richard Drax), but many of them, without being overtly critical, did signal reservations. Aubrey Allegretti wrote up some examples at 10.45am. Here are some more.

Kevin Hollinrake said that alhtough growth and cutting taxes were Conservative principles, “balancing the books” was a Tory principle too. He asked Kwasi Kwarteng:

Can he confirm as he seeks to balance the books in the future, because of course there will be a higher deficit either way on this announcement, he will not do so by cutting infrastructure investment in the north?

Sir Bob Neill said the Conservatives should stand for sound money. He said:

I also welcome the changes to stamp duty, but will [Kwarteng] bear in mind, as I’m sure he does as a Conservative, that we also believe in sound money and that we must keep an eye on inflation? Because we do not want the benefit of the stamp duty cut to be eroded for many homeowners by the increased mortgage costs.

And Sir Jeremy Wright warned about the risk of higher interest rates. He said:

Would [Kwarteng] also agree that confidence will evaporate if people’s costs on their mortgages increase further than the benefits that they gain from tax reductions, and will he do all he can to make sure that doesn’t happen?

Business organisations broadly welcome mini-budget

Business organisations have warmly welcomed the mini-budget.

This is from Tony Danker, the director general of the CBI.

Like Covid, the energy crisis has meant Government has had to spend massively to protect people and businesses. That means we have no choice but to go for growth to afford it.

Today is day one of a new UK growth approach. We must now use this opportunity to make it count and bring growth to every corner of the UK.

Fifteen years of anaemic growth cannot be repeated.

Taking action to get Britain’s economy moving again by beginning construction on transport and green infrastructure projects shows immediate delivery. Planning reform is long overdue.

This is from Shevaun Havilland, the director general of the British Chambers of Commerce.

Businesses across the UK will enthusiastically welcome the chancellor’s pledge to focus on economic growth and speed up new infrastructure development.

Kitty Usher, the chief economist at the Institute of Directors, also welcomed the plans.

This is a good news day for British business. In a time of low confidence and economic uncertainty, the new chancellor’s emphasis on going for growth will be very welcome to firms of all sizes across the UK. Taken together with the energy bills relief scheme, the package as whole will make it easier for businesses navigating a challenging economic environment in the coming months.

But she said there were concerns about whether the measures were affordable.

However, we are concerned that the chancellor had not asked the OBR to undertake its usual independent assessment of the impact of its proposals on government debt and the wider macroeconomy. Without this, neither businesses nor parliament have the reassurance that the scale of this intervention is affordable and so does not jeopardise overall economic stability.

Updated

Here is the headline on the Bloomberg UK homepage. Bloomberg is a news service primarily for the City, which is normally rather cautious in its coverge.

Bloomberg UK homepage
Bloomberg UK homepage Photograph: Bloomberg UK

UPDATE: Bloomberg has tweeted this.

Updated

From Mark Drakeford, the Welsh first minister

In the Commons Andrew Mitchell, the Conservative former international development secretary, asked Kwasi Kwarteng if he could confirm that the UK was on course to return aid spending to 0.7% of national wealth in 2024. Kwarteng refused to give that commitment. He replied:

We’re always looking at our manifesto commitments and given our leadership in this I hope we can come to the 0.7% as is practicable and the public finances allow.

The UK’s Debt Management Office has confirmed that Britain’s borrowing needs will surge this year, to pay for the tax cuts announced today.

The DMO, which is responsible for managing the government’s debt and cash needs, is raising its debt issuance plans by £72.4bn, to £234.1bn.

Those extra financing needs mean the DMO must issue an extra £62.4bn of gilts – taking the total to be sold this year to £193.9bn.

This is helping to drive up the cost of government borrowing so dramatically this morning –-- as investors will demand a higher rate of return for swallowing all this extra debt from the UK.

Bond yields (the rate of return for holding the debt) are now on track for their biggest surge in decades – with two-year gilts yields still the highest since 2008.

Updated

From Nicola Sturgeon, Scotland’s first minister

1% higher growth could eventually increase annual tax receipts by £47bn, Treasury claims

Liz Truss and Kwasi Kwarteng argue that the tax cuts announced today will eventually pay for themselves because they will unleash higher growth, which means more economic activity, which means tax receipts eventually being higher than they otherwise would have been. It is impossible to prove that this will happen, but, as Chris Philp, the chief secretary to the Treasury, pointed out on the BBC just now, the growth plan published today does include estimates showing how higher growth could lead to higher tax receipts.

The document says:

Table 4.3 sets out a range of illustrative effects of raising GDP growth in the medium-term on tax receipts. Holding the tax (Public Sector Current Receipts (PSCR)) to GDP ratio constant at its 2021-22 level, sustainably raising annual GDP growth by ½ to 1 percentage point each year could raise annual tax receipts by £23 billion to £47 billion by the fifth year. The economic effects of the Growth Plan, and the consequences for tax receipts, spending, government borrowing and debt, will be assessed in full by the OBR when they publish a forecast before the end of 2022. Previous OBR analysis suggests that raising real GDP growth to 2-3% a year over three years, from a base growth forecast of 1.6% per year for those three years, could provide a benefit to the public finances of £10-40 billion through a range of effects across tax and spending.

And here is the chart (table 4.3).

Treasury estimate for impact of higher growth on tax receipts
Treasury estimate for impact of higher growth on tax receipts Photograph: HM Treasury

As always, the smallprint is worth reading. It says these figures are “purely illustrative” and “do not provide an assessment of what effect the policy package will have”.

Sterling extends losses on fears over unfunded tax cuts

Sterling has tumbled to a fresh 37-year low as the financial markets show alarm over the swathe of unfunded tax cuts announced by Kwasi Kwarteng this morning.

The pound has dropped below $1.11 against the US dollar, for the first time since 1985, as investors baulk at the huge extra borrowing needed to fund today’s plans.

That’s a drop of a cent and half so far today.

Susannah Streeter, senior investment and markets analyst, Hargreaves Lansdown, warns that confidence in the UK economy has faded away further following this morning’s announcements.

’Kwasi Kwarteng has set off fireworks with this budget, which collides with the Bank of England’s efforts to dampen down inflation, while sparking a firestorm of criticism about benefiting the wealthy much more than the poorer sections of society.

Scrapping the top rate of tax will return many thousands of pounds to high earners, while lifting the cap on bankers’ bonuses is likely to be hard to swallow for low paid workers on the picket lines, calling for pay rises to help them survive the cost of living crisis.

Streeter warns that Liz Truss’s policies could crash and burn, particularly if government borrowing costs soar further (they’ve already surged alarmingly today).

There are signs that buyers of UK government bonds are becoming even more nervous about the government’s ‘splash the cash’ policies, given the mounting debt pile.

Rachel Winter, Partner and Investment Manager at Killik & Co, also says sterling’s weakness shows a lack of confidence in the government’s plans.

Updated

SNP's Alison Thewliss says mini-budget amounts to 'plan for recession and public sector cuts'

In the Commons Alison Thewliss, the SNP Treasury spokesperson, said the mini-budget was a plan for recession and public sector cuts. She said:

It is a plan for recession, for debt on an unsustainable trajectory and almost inevitable public sector cuts to come.

Actively choosing to permanently cut taxes and spend eye-watering sums to patch up a failed energy market while inflation soars, interest rates are hiked and recession looms, it will not create growth, it’ll create economic chaos.

Nothing he has said today will provide any reassurance and give hope to ordinary people, folks struggling to get by in broken Britain.

Scotland is looking for a different path. Scotland needs independence.

In response, Kwasi Kwarteng, the chancellor, said: “What Scotland doesn’t need is reheated socialism from the SNP.”

Alison Thewliss
Alison Thewliss Photograph: Uk Parliament/JESSICA TAYLOR/Reuters

And this is from Paul Johnson at the Institute for Fiscal Studies. It means the price of UK government borrowing is rising.

Why? Because markets fear that borrowing is getting out of control. Earlier this week the IFS said rising government debt ‘would eventually prove unsustainable’ under the government’s plans. Johnson is standing by that judgment.

The pound is falling, Sky’s Ed Conway reports.

'Politically toxic' - Sunak-backing Tories express concern about mini-budget measures

Rishi Sunak supporters have turned on the chancellor, pouring heavy scepticism on his argument that tax cuts will grow the economy while curbing inflation.

Mel Stride, who helped run Sunak’s leadership campaign, said there was a “vast void” in the statement given the lack of an independent analysis of today’s announcements by the Office for Budget Responsibility.

In the Commons he told Kwarteng that “now is the time for transparency” and that he should “provide a calmness to the markets”.

John Glenn, the former City minister and another key Sunak backer, said there was clear concern in the financial markets about the “irreconcilable” realities of monetary tightening at the same time as fiscal loosening.

He was alluding to the opposite directions the government and Bank of England seem to be pulling in. He also suggested that lifting the cap on bankers’ bonuses was of lesser importance to the overall tax burden banks face.

Another Sunak-supporting MP told the Guardian they “completely despair” at the measures announced - “because I’m a member of a party that stands up for the squeezed middle, not the very rich”. They add: “This will be politically toxic and economically dubious.”

Scrapping the 45p tax rate would leave people “aghast”, they added.

This is from the consumer champion Martin Lewis on the mini-budget.

Labour's Rachel Reeves says mini-budget 'return to trickle-down of past' that amounts to admission of 12-year Tory failure

Rachel Reeves, the shadow chancellor, responded to the mini-budget for Labour. Here are extracts from her speech.

  • Reeves said the the mini-budget amounted to an admission of Tory failure. She said:

When the prime minister says she wants to break free from the past, what she really means to say is that she wants to break free from her own failed record, because where have the last 12 years left us?

Lower growth, lower investment, lower productivity and today we learn that we have the lowest consumer confidence since records began.

The only things that are going up are inflation, interest rates and banker bonuses.

  • She said the mini-budget was based on an outdated ideology. She said:

It is all based on an outdated ideology that says if we simply reward those who are already wealthy, the whole of society will benefit. They have decided to replace levelling up with trickle down.

As President Biden said this week, he is is sick and tired of trickle-down economics. And he is right to be. It is discrecredited, it is inadequate and it will not unleash the wave of investment that we need.

  • She said the chancellor was prioritising the rich. She said:

The chancellor has made clear who his priorities are today - not a plan for growth, a plan to reward the already wealthy. A return to the trickle-down of the past, back to the future, not a brave new era.

  • She said she did not think the stamp duty cuts would boost home ownership. She said:

These stamp duty changes have been tried before. Last time the government did it a third of the people who benefited were buying a second home, a third home or a buy-to-let property. Is that really the best use of taxpayers’ money when borrowing and debt are already so high?

  • She condemned Kwasi Kwarteng for not allowing the Office for Budget Responsibility to produce a new forecast based on these plans. She said:

Never has a government borrowed so much and explained so little.

Economic institutions matter yet this government has undermined the Bank of England, sacked the respected permanent secretary at the Treasury and silenced the Office for Budget Responsibility. This is no way to build confidence, this is no way to build economic growth.

  • She said Labour favoured an alternative approach to wealth creation. She said:

Labour believes in wealth creation …

We will always support enterprise, creativity and hard work. We want British business to grow, to be successful and to contribute to our country’s prosperity, what we don’t believe - the chancellor and prime minister do - is that British workers are idlers.

This statement is more than a clash of policies, it is a clash of ideas. Two different ideas about how our country prospers.

If you are a pensioner worried about the cost of living, a working family seeing your mortgage rate going up, a small business whose costs are spiralling, the government’s announcements today do little to reassure them.

Bigger bonuses for bankers, huge profits for energy giants, shamelessly shielded by Downing Street, and all the while ministers pile the crushing weight of all of these costs onto the backs of taxpayers.

Rachel Reeves
Rachel Reeves Photograph: UK Parliament

Here is some snap reaction to the mini-budget from experts.

From Paul Johnson, director of the Institute for Fiscal Studies thinktank

From Torsten Bell, chief executive of the Resolution Foundation

From Faisal Islam, the BBC’s economics editor

From Ben Zaranko, an IFS economist

Updated

Tax cuts to cost Treasury around £37bn in 2023-24, Treasury reveals

Here is the chart from the growth plan document showing the cost of the tax cuts announced today.

The headline cost for 2023-34 is £26.7bn. But this calculation includes revenue of £10.4bn from the energy profits levy (a measure that has already been announced), and if you exclude that, the tax cuts announced today will cost around £37bn in the next financial year.

Given that today, for the first time, we got a costing for the energy bills package (see 9.42am), Kwasi Kwarteng has announced measures costing the exchequer about £100bn.

Cost of tax cuts announced by Kwarteng
Cost of tax cuts announced by Kwarteng Photograph: HM Treasury

Updated

Government bond yields surge to highest since 2008

UK government bond prices are sliding as the City reacts to the increase in borrowing needed to fund Kwasi Kwarteng’s mini-budget.

The yield (in effect the interest rate) on two-year UK gilts has jumped to the highest level since 2008. It’s risen to 3.76%, a jump of 25 basis points today (a really sharp daily move).

Yields rise when prices fall, so this shows investors expect a surge of extra gilts being issued to pay for the unfunded tax cuts announced today.

The yield on benchmark 10-year gilts has also jumped, to the highest since 2011.

Updated

The Treasury growth plan documents are now available here, on the Treasury’s website.

Updated

Kwarteng says highest rate of income tax being abolished, and basic rate being cut to 19% from next April

Kwarteng concludes with two announcements about income tax.

He says the top rate of income tax – the 45% rate for earnings over £150,000 – is being abolished altogether.

He says Labour never had a 45% rate of income tax when it was in power.

And he says the government will cut income tax by 1p in the pound from April next year. That is one year earlier than planned, and it will take the rate down to 19%, he says.

This means that we will have one of the most competitive and progressive income tax systems in the world.

That’s it. He has finished the speech.

Kwarteng says stamp duty being cut from today

Kwarteng confirms the national insurance increase is being reversed from November.

And he says stamp duty is being cut. No stamp duty will be paid on the first £250,000 of a property, and for first-time buyers the threshold will be £425,00, he says.

He says these meausure will take more than 200,000 buyers out of paying for stamp duty altogether.

He says these cuts are permanent, and effective from today.

Kwarteng says planned increases in duty rates for beer, cider, wine and spirits will be cancelled.

Kwarteng says the government will introduce VAT-free shopping for tourists.

Kwarteng says the annual investment allowance will not be cut as planned.

He says he will abolish the Office of Tax Simplification, because all his officials will have to focus on tax simplification.

Retained EU regulations will be subject to a sunset (ie, repealed, if the government does not decide to renew them) from December 2023.

Kwarteng confirms planned increase in corporation tax cancelled

Kwarteng confirms the government will review the tax system.

Next year’s planned increase in corporation tax will be abandoned, he says.

Low taxes encourage investment, he says.

Kwarteng says low-tax investment zones could be set up in almost 40 areas

Kwarteng confirms the government is setting up “new investment centres”

We will cut taxes for businesses in designated tax sites for 10 years. There will be accelerated tax reliefs for structures and buildings and 100% tax relief on qualifying investments in plants and machinery, on purchases of land and buildings for commercial or new residential developments.

There’ll be no stamp duty to pay whatsoever on newly occupied business premises. There’ll be no business rates to pay whatsoever and if a business hires a new employee in the tax site, then on the first £50,000 pounds they earn, the employer will pay no national insurance whatsoever.

He says the government is discussing creating these zones in nearly 40 places.

Kwarteng confirms cap on bankers' bonuses to be lifted

Kwarteng says he wil reform the pension charge cap, so that pension funds can invest more easily in UK assets.

He confirms he will lift the cap on bankers’ bonuses.

Kwarteng says government will legislate to put new conditions on unions wanting to strike

Kwarteng says other countries have legislation to ensure minimum services continue during strikes. The government will do the same.

And it will legislate so that unions have to put pay offers to a vote

Kwarteng is now confirming the benefits changes announced earlier this week.

Kwarteng says government will legislate to remove planning restrictions 'that constrain growth'

Kwarteng is now talking about supply side reforms.

There will be announcements in the coming weeks covering the planning system, business regulations, childcare, immigration, agricultural productivity and digital infrastructure.

Addressing planning, Kwarteng says the system is too slow.

The government will bring forward a bill “to unpick the complex patchwork of planning restrictions and EU derived laws that constrain our growth”.

Kwarteng says government's energy package will cost £60bn over next six months

Kwarteng says his growth plan is based on “reforming the supply side of the economy, maintaining a responsible approach to public finance and cutting taxes to boost growth”.

The Office for Budget Responsibility will publish an economic forecast before the end of the year.

But costings for today’s measures will be announced, he says.

He says the energy package is expected to cost £60bn in total in the six months from October.

Kwarteng says the government wants a new approach to growth. It wants to get the trend rate of growth up to 2.5%.

That is how we will deliver higher wages, greater opportunities and crucially fund public services, now and into the future.

Kwarteng goes on: “None of this is going to happen overnight” That prompts some jeering.

Kwarteng says government considers Bank of England's independence to be 'sacrosanct'

Kwarteng says the Bank of England is taking further steps to contol inflation, acting again yesterday. He goes on:

This government considers the Bank of England’s independence to be sacrosanct.

Kwasi Kwarteng is starting now.

He begins by addressing the cost of energy. People will have seen the horrors of the invasion of Ukraine. Energy bills could reach as high as £6,500 next year, reports said, he tells MPs. But the governement was never going to allow that to happen. The government has intervened.

He says it has taken three steps.

The energy price guarantee will limit bills for the average household to £2,500, he says.

For businesses, the government has introduced the energy bills relief scheme. This will provide a price guarantee equivalent to the one for households.

And, third, the government is announcing an energy markets financing scheme. This will offer emergency liquidity to traders.

This will reduce peak inflation by around five percentage points, and reduce the cost of servicing government debt, he says.

The mini-budget statement – Kwasi Kwarteng’s speech, the response from Labour, and then questions from MPs – will last for about two hours. After that there will be a three hour debate on the measures announced in the plan.

From the Treasury Twitter account

Pound hits 37-year low against dollar as UK 'ramps up borrowing at a dizzying pace'

The pound has hit a 37-year low against the dollar, my colleague Graeme Wearden reports on his business live blog.

Kwarteng to start delivering his mini-budget soon after 9.30am

There are no urgent questions in the morning, and so Kwasi Kwarteng, the chancellor, will be delivering his statement soon after 9.30am.

The Commons starts sitting at 9.30am, but they always begin with prayers in private, and so Kwarteng will be up a few minutes later.

Labour says it is 'sceptical' cutting stamp duty would increase home ownership

In his Today interview Pat McFadden, the shadow chief secretary to the Treasury, also indicated that Labour would oppose a cut in stamp duty. It has been reported that Kwasi Kwarteng will cut stamp duty, although the Treasury has not confirmed this and it is supposed to be one of the surprise announcements for today. But McFadden said:

The last time they did it one third of the beneficiaries were people buying second homes or buy to let, so we are sceptical that this is the magic bullet to increase homeownership. What we really need to do is to build more houses and to help get people onto the property ladder by increasing the supply of housing.

When this has been done before, it has often fuelled an already hot market and many of the beneficiaries have been people buying a second or third home, rather than the first time buyers that we really want to help who are often trapped in private rented accommodation where they’re paying as much in rent every month as they would in a mortgage.

One of the aspects of today’s announcement that has been overlooked is that, in at least one respect, it marks a policy victory for Labour. Labour opposed the national insurance increase when it was introduced, even though that enabled Boris Johnson to claim the party was opposed to extra money for the NHS. In his Today interview this morning Pat McFadden, the shadow chief secretary to the Treasury, said reversing the increase was the right thing to do. He explained:

We disagreed with a national rise in the first place and said at the time that to impose what is, in effect, an income tax rise on working people in the middle of a cost of living crisis was the wrong thing to do. We were the only major economy doing that this year. We were furiously attacked for it … And here we are, a few months later, with the first piece of legislation from this government being the national insurance rise repeal bill. It is the legislative equivalent of digging a hole and filling it back in again.

This is the third economic decision where Labour can claim to have been ahead of the government this year. It called for a windfall tax on energy companies before Rishi Sunak reluctantly introduced his own version, and Keir Starmer said energy prices should be frozen before Liz Truss announced her own version of the plan.

Pat McFadden
Pat McFadden Photograph: UK Parliament/Jessica Taylor/PA

Updated

Kwasi Kwarteng leaving No 11 this morning, holding a copy of the growth plan he will announce to MPs.
Kwasi Kwarteng leaving No 11 this morning, holding a copy of the growth plan he will announce to MPs. Photograph: Aaron Chown/PA

From Sky’s Ed Conway

Updated

Pat McFadden, the shadow chief secretary to the Treasury, was also giving interviews this morning. He told BBC Breakfast that the government was engaged in trickle-down economics. He explained:

What today looks like is the government taking an enormous gamble with the public finances by taking a series of measures and putting it all on borrowing, and calling it a plan for growth …

This isn’t really a plan for growth, it is a return to some very old-style Tory polices based on the belief that if you make those who are already wealthy even wealthier it will trickle down to the rest of us …

It will be the third change in national insurance in six months. It is the legislative equivalent of digging a hole and filling it back in again.

Simon Clarke, the levelling up secretary, had a particularly tricky interview on the Today programme with Mishal Husain. It prompted these tweets from Jonathan Portes, a former government economist and now an economics professor at King’s College London.

Ian Mulheirn, head of policy at the Tony Blair Institute thinktank, was equally unimpressed.

And the FT’s Peter Foster wasn’t convinced by Clarke’s economic analysis either.

Levelling up secretary Simon Clarke says it's 'nonsense' to call Truss's approach trickle-down economics

Simon Clarke, the new levelling up secretary, has been doing interviews this morning ahead of the mini-budget. Here are some of the points he has been making.

  • Clarke said it was “nonsense” to describe Liz Truss’s policies as trickle-down economics. He told Sky News:

This whole term trickle-down is such a nonsense and is itself a centre-left mischaracterisation of what this government is all about. We need to grow the economy because a more successful economy is good for everybody.

As my colleague Larry Elliott explains here, what Truss is saying and doing fits exactly with the usual definition of trickle-down economics.

  • He said the new investment zones planned by the government would only be set up with local consent. He said:

These zones will only happen where there is local consent and we’ve been very clear about that in the discussions we’ve been having with local authorities and mayors over recent days …

They will only happen where there is a local appetite for them to occur. There will be no top-down imposition of these zones.

  • He insisted that the tax cuts being announced today would eventually be funded by the tax revenue produced by the growth the tax cuts would stimulate. Asked who would pay, he said:

The prescription here is that we get a better underlying growth that unleashes the tax receipts that will allow us to both grow the economy and also to get on top of that debt.

Updated

Labour says mini-budget will be 'another zigzag on path of policy failure'

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.

Reeves is particularly critical of the plan to abandon the planned increase in corporation tax. She says:

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.

And she also says Truss is wrong to say that growing the economy matters more than worrying about how its benefits are shared. Reeves says:

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.

Good morning. At the Guardian, like the BBC, for the sake of simplicity, we’ve decided to call today’s event the mini-budget of 2022. That is clearer than calling it a “fiscal event”, as they do at the Treasury, but it’s not ideal because what we are getting is not a budget (if it were, it would be accompanied by an Office for Budget Responsibility economic forecast, probably saying it would have dangerous consequences for inflation and borrowing), and it is not going to be mini at all. In fiscal terms, it will be humongous – the biggest package of tax cuts since Nigel Lawson’s budget of 1988, according to economists.

And just as the Lawson budget shifted the political consensus around taxation for a decade, Liz Truss and her chancellor, Kwasi Kwarteng, want to smash orthodox thinking on borrowing and growth. When David Cameron became prime minister in 2010, the Conservatives beat Labour by claiming that Gordon Brown had spent too much and lost control of the public finances. Faced with Jeremy Corbyn, the Tories claimed that Corbynomics was dependent on the discovery of some non-existent “magic money tree”. Now Truss and Kwarteng are arguing that unfunded tax cuts are wise, because they will jump-start economic growth, eventually leading to higher tax revenues, even though Rishi Sunak, Kwarteng’s predecessor, explicitly rubbished this approach in his Mais lecture in February this year. Sunak said:

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.

Sunak will be thoroughly disheartened today.

This may turn out to be the defining announcement of the Truss premiership, and it is extraordinarily risky. The political danger is that, even if Truss and Kwarteng can turbo-change the economy, voters will not start to notice before the next election. The economic worry is that the strategy will fail, and that they will crash the public finances.

Here is our overnight news story on what to expect, by Larry Elliott, Jessica Elgot and Richard Partington. Chancellors always like to have a surprise announcement on budget day, and it has been reported that Kwarten has left two rabbits in his hat ready to present to MPs.

In his First Edition briefing, Archie Bland has a good analysis of what is coming – and, even more importantly, a guide to what we don’t know about what will happen today.

And Richard Partingon has five charts that explain the background to the mini-budget.

Kwarteng is due to make his statement to MPs at 9.30am, although if the Speaker grants an urgent question (which is unlikely), it could come later. We will be covering it here live, and then bringing you all the best reaction and analysis.

I try to monitor the comments below the line (BTL) but it is impossible to read them all. If you have a direct question, do include “Andrew” in it somewhere and I’m more likely to find it. I do try to answer questions, and if they are of general interest, I will post the question and reply above the line (ATL), although I can’t promise to do this for everyone.

If you want to attract my attention quickly, it is probably better to use Twitter. I’m on @AndrewSparrow.

Alternatively, you can email me at andrew.sparrow@theguardian.com

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