The new Conservative government in the United Kingdom announced this Friday the largest generalized tax cut in the last 50 years, in an attempt to rescue the country from an economic stagnation that has lasted since the years of austerity, imposed to try to get out of the crisis financial year of 2008. More than 50,000 million euros in fiscal relief, at a time of maximum overheating of inflation. The Labor opposition has attacked the use of old neoliberal recipes that, it denounces, will aggravate inequalities.
The new Prime Minister of the United Kingdom, Liz Truss, and her Minister for the Economy, Kwasi Kwarteng, repeat the same mantra whenever the occasion allows: “It is not possible to grow economically based on more taxes”. With the faith of the convert, two political allies who have been quietly preparing their “revolution” for years have finally unveiled their plan to lift the UK out of a decade of stagnation. And it basically consists of recovering the neoliberal creed of the Reagan and Thatcher era: low taxes and deregulation of markets. The “trickle down effect”, the “supply economy”, the “Laffer curve”. In short, the idea that reducing the tax burden on the wealthiest companies or citizens will stimulate investment and will achieve, like manna, that wealth reaches the whole of society.
“We need a new approach for a new era. In the medium term, we aspire to reach an average growth rate of 2.5%”, Kwarteng announced this Friday in his expected appearance before the House of Commons. “We want to expand the part of the supply in our economy, through tax incentives and reforms,” promised the minister. “We will turn this vicious circle of stagnation into a virtuous circle of growth. This government is going to focus on growth, even if that means making tough decisions.”
Truss and Kwarteng, together with other conservative deputies heirs to Thatcherism, jointly wrote a book 10 years ago entitled Britannia Unchained (Britain Unchained), in which they advocated a complete liberalization of labor laws and markets to rescue the UK from mediocrity. His time seems to have come now. The great paradox is that they have limited time —the next general election must be held, as a deadline, in January 2025—, their electoral expectations are minimal, according to the polls; and the new conservative government has started in the midst of a huge energy crisis, on the verge of a recession, and in a deep climate of social discontent.
Aid and tax reductions
Faced with such a scenario, those who promise to release the nation’s “internal energies” with less taxes and fewer regulations have announced one of the largest direct interventions in the economy of a British Government. More than 170,000 million euros in aid to households, companies, businesses and public administrations to halve the gas and electricity bills they will have to pay this winter.
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With galloping inflation (9.9%, according to data for August), the Bank of England decided on Thursday to raise interest rates by half a point, up to 2.25%. The Truss government maintains that, with its limits on the price of energy, and its plans to guarantee massive loans to energy companies, “the maximum peak of inflation can be reduced by about five percentage points”, according to Kwarteng. Others, such as the prestigious Institute of Fiscal Studies (IFS), point out that the indebtedness that the Truss plan is going to cause will end up further weakening the British economy, as is already being verified these days with the level of sterling, the lowest in a long time. Minutes after Kwarteng’s announcement, the British currency was at its worst exchange rate in 37 years. “It’s the biggest tax cut since 1972. Barber’s famous ‘growth spurt’ [Anthony Barber, ministro de Economía del Gobierno conservador de Edward Heath] it ended in disaster. That budget is now considered the worst in contemporary history. Really, I trust that this one works better”, has written Paul Johnson, the director of the IFS.
Truss has decided to reverse decisions made just a year earlier by the previous government. The increase in Social Security contributions, to help improve the decrepit National Health Service (NHS, in its acronym in English), annulled. The decision to increase the Corporation Tax in 2023 from 19% to 25%, annulled. The maximum personal income tax rate, for the highest incomes, reduced from 45% to 40%, while the basic rate will drop from 20% to 19%. In other words, the greatest benefit will go to the almost 630,000 people in the United Kingdom who earn more than 170,000 euros a year. Finally, a notable reduction in the Property Transfer Tax (the so-called Stamp Duty), to encourage home sales, just when mortgages have skyrocketed again.
“They have been based on an absolutely outdated ideology, which defends that if we reward those who are already rich, the whole society will benefit. They have decided to jump from the territorial redistribution of wealth [la gran promesa electoral de Boris Johnson en su victoria de 2019] to the distribution of the crumbs ”, has reproached Minister Kwarteng, during the parliamentary debate, the Labor spokesperson for Economic Affairs, Rachel Reeves.
The main opposition party, which since the leadership of the moderate Keir Starmer has based its message on the need to revive the UK economy — “growth, growth and growth”, Starmer repeated in his speech at the last party congress — now concentrates on denouncing what, according to them, is the wrong and unfair strategy of a conservative government that has decided to side with the rich. Labor reproaches Truss, for example, for having completely rejected the possibility of reimposing an extraordinary tax on the “profits from heaven” of energy companies, as the Johnson Government did.
“To achieve that growth target [el 2,5%], the same as was achieved under the last Labor government, a sustainable and credible plan is needed. And this government does not have it,” Reeves denounced. “The prime minister and her finance minister are like two desperate gamblers in a casino, chasing one last stroke of luck,” he has said.
The Truss government has also decided to skip the rule that imposes the publication, along with any new budget measure, of the report of the Office of Budget Responsibility, in order to know in advance the expected consequences in the country’s accounts. They delay that publication to the end of the year, which increases the general feeling that what was announced this Friday in Parliament has a lot of jumping in the dark. The new Prime Minister displays a defiant confidence in her actions, in her big bid to get the Conservatives to retain power in the UK, but it remains the same stubborn confidence that led her to be a Liberal Democrat and anti-monarchist as a youngster, or to fight Brexit in the 2016 referendum and be its main supporter today. When she repeats that it is not possible to grow based on more taxes, what many of her critics hear is that it is possible to stimulate the economy based on ideology.
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