Money

Chancellor Kwasi Kwarteng has just announced a surprise 5p cut to the top rate of income tax and a 1p cut to the basic rate of tax. Together with stamp duty cuts and others, it will reduce tax by £45 billion by 2026-27 according to the Treasury’s analysis. The IFS says this is the biggest tax cutting event in half a century. Kwarteng confirmed that the National Insurance rise will be reversed, with the tax going down from November. Stamp duty will also be cut. Kwarteng argues that this will put money back into the economy and kick start growth, but without an OBR forecast there is no formal assessment of the actual

Rising interest rates is a key pillar of Trussonomics. Liz Truss herself has always stopped short of saying this explicitly, pointing fingers instead at the Bank of England for its failure to curb spiralling inflation. But the economists advising her have made clear, in no uncertain terms, that they think interest rates have been too low for too long.  Right from the start of her leadership campaign, Truss was far more vocal about her criticisms of the Bank; a point made even clearer once she entered No. 10 and her Chancellor Kwasi Kwarteng set up bi-weekly meetings with the Bank’s governor Andrew Bailey. With this new pressure being applied on the

Big spending announcements tend to come alongside big press conferences. During the pandemic years, furlough announcements, extensions and business support were delivered in front of a podium, with rough figures usually attached to each policy. It was the same for the energy crisis, at the start. But as the costs of the support schemes rose, we started to lose transparency. The £9 billion announcement in February came with a headline figure and a rough breakdown of where the money would come from. The £15 billion announcement in May came with a headline figure, but much of the funding stream was glossed over, assumed to be borrowed. These multi-billion pound support

Critics say that scrapping the cap on bankers’ bonus will encourage a return to excessive risk taking. It will provoke retaliation from the European Union, they warn. And perhaps, worst of all, it could prove fatal politically, rewarding a few rich Tory friends while the rest of the country struggles with the cost-of-living crisis. Chancellor Kwasi Kwarteng will get lots of criticism if, as predicted, he does decide to bin the cap in his upcoming financial statement. Even so, he should ignore the naysayers. It will certainly be a controversial move. The controls on City bonuses were imposed right across the EU in the wake of the crash of 2008/2009. These

This morning’s surprise update from the Office for National Statistics shows headline inflation at 9.9 per cent on the year to August, down slightly from 10.1 per cent in July. While consumer inflation remains at a 40-year high, the drop from double digits back into single digits has the optimists whispering: might inflation have peaked? This update is no doubt good news, but this is likely to be a brief moment of calm in an ongoing storm. The slight fall in headline inflation has primarily been driven by easing fuel prices, as the cost of oil has been on a downwards trajectory. That at least is an early sign that global markets

One implication of the Russian gas shut-off is that Norway has now become the EU’s largest single supplier of natural gas. According to the country’s energy ministry, they are expected to export 122 billion cubic metres of gas south to the EU over the course of 2022. This compares with the 155 billion cubic metres of gas which the union imported from Russia in 2021. Getting gas from Norway is obviously preferable to Russia: Norway is a friendly country, and Nato ally, and has gone out of its way to facilitate as much exports to the EU as possible. Over the summer, the country’s government effectively put a stop to

One of Liz Truss’s suggestions on the leadership campaign trail was that her economic agenda could avoid recession. But one of the (many) gambles attached to these comments was what had already happened to the economy before she entered No. 10. This morning we got some more insight about how the economy fared over the summer, as the Office for National Statistics revealed that GDP grew by 0.2 per cent in July: a small uptick, following a 0.6 per cent contraction in June. The small, but still positive, growth was mostly a result of a boost to services industries, which fell by 0.5 per cent in June, with the largest

It’s all getting a bit Latin American in Britain and not in a good way. Inflation is stuck stubbornly in the double digits, the current account deficit is at record levels, our new Prime Minister is preparing to spend the annual budget of the NHS on subsidising energy purchases, and regional separatists are tightening their grip on the Scottish economy by introducing price controls. At least the weather’s still good. Nicola Sturgeon’s plan to freeze all rents in Scotland would be a disaster for Scots. Economists almost universally agree that rent control is one of the worst possible ways the government can intervene in a housing market. The short-term consequences

It is not unusual for promises made during an election campaign to fail to survive a headlong impact with reality, but if, as expected Liz Truss, announces an energy price freeze tomorrow, it will leave many Conservative party members who voted for her feeling somewhat cheated. For most of the leadership campaign Truss denounced the idea of government help with energy bills and insisted she would tackle the problem with tax cuts instead. Taxing people and then giving them some of their money back in handouts, she said, was ‘Gordon Brown economics’. Yet it now seems that not only will she spend large amounts of money to bail out householders’

Labour will attack the new prime minister from the left and the right. From Liz Truss’ exposed left flank, Labour and the majority of the electorate will hammer her for not extending the windfall tax to cover the estimated £170 billion in profits Vladimir Putin has gifted gas and electricity generators. Do not imagine for a moment that it won’t be effective. The attack from the right is less obvious but gets to the heart of the risk Liz Truss is running with the UK economy. ‘We need to paint her as fiscally irresponsible,’ one adviser to Labour’s Treasury team told me. ‘That’s as important as showing she has the wrong

‘It’s fair to give wealthiest more money back – Truss’. That’s the headline on a BBC News story following Liz Truss’ interview with Laura Kuenssberg today, where she was asked about the merits of cutting National Insurance. Don’t worry if you missed the headline though. You’ll get plenty more chances to see it when Labour MPs repeat it over and over again, offering it as proof that the Tories are the party of the rich, a tag that Conservative leaders have sought to drop for the last two decades. So striking is the prospect of a would-be Tory leader clearly defending a policy that benefits the rich more than the poor,