Liz Truss made it clear before Friday’s fiscal package that she was prepared to be unpopular for making it her first priority to cut taxes for business and the better-off. In the event, the contrast with the “levelling up” policies adopted by recent Conservative governments could not have been clearer.
“For too long in this country we’ve indulged in a fight over redistribution,” new chancellor Kwasi Kwarteng told parliament as he announced tax cuts for companies, top earners and homebuyers alongside a clampdown on benefits claimants and striking workers. “We won’t apologise for managing the economy in a way that increases prosperity and living standards.”
But the measures he announced drew a furious reaction from unions, charities and the Labour opposition. Meanwhile, economists and think-tanks said the biggest benefits would flow to the highest earners, and that the package would make no significant difference to the UK’s long-term economic growth.
Carys Roberts, director of think-tank the Institute for Public Policy Research, said the string of tax cuts would provide no more than a “sugar rush of immediate growth”. However, she added, they would “turbo-charge inequality . . . while leaving public services on an unsustainable footing” and would reduce the scope for investment “by vastly expanding government borrowing for no clear economic gain”.
The Treasury did not publish its usual analysis of the distributional effect of the new policies. But the main fiscal measures Kwarteng set out and the more symbolic changes, such as lifting the cap on bankers’ bonuses, were explicitly aimed at those higher up the earnings scale.
Torsten Bell, director of the Resolution Foundation, described the package as “full-throated trickle-down”. The think-tank estimates that almost two-thirds of the gains from personal tax cuts — the 1p reduction in the basic rate of income tax, reversal of the previous rise in national insurance and abolition of the 45 per cent rate for top earners — would flow to the richest fifth of households, with the poorest half receiving just 12 per cent. Someone on a salary of £200,000 would gain £5,220 a year, while someone earning £20,000 would gain just £157.
The cut to stamp duty would also make a much bigger difference in London and the south-east, where property prices are higher, than elsewhere, the Resolution Foundation noted — cutting the tax bill on an average first-time buyer’s purchase by £6,300 in London but having no effect at all in the north-east.
Paul Johnson, director of the Institute for Fiscal Studies, noted that despite the tax cuts, middle earners were still set to pay more to the exchequer over the next few years, because Kwarteng had not cancelled other recent reforms, such as the freezing of the personal allowance.
Taking into account all reforms to income tax and national insurance introduced during the current parliament, “only those on over £155,000 will pay less tax overall. The very rich will pay tens of thousands less,” he said.
The IFS said people earning between £63,000 and £125,000 would be the biggest losers in cash terms, paying £1,570 more in direct tax in 2025-26 than if no changes had been made.
“This is unashamedly a budget for the rich, big business and the City,” said Sharon Graham, general secretary of the union Unite, while Frances O’Grady, leader of the Trades Union Congress, described the measures as “Robin Hood in reverse”.
“They will be toasting the chancellor in the boardrooms as we speak, while working people will be left to pick up the bill,” said Rachel Reeves, the shadow chancellor, adding that the government had chosen to shield energy companies making excess profits, with high energy costs eventually falling to taxpayers.
Kwarteng’s argument is that cutting corporate taxes will help everyone, if it leads businesses to lower prices, pay higher wages and boost dividends that flow into pensions. “The interests of businesses are not separate from the interests of individuals,” he said.
But the chancellor has at the same time made it harder for workers to bargain for their share of corporate profits — pledging legislation that will make it harder for unions to organise industrial action, by requiring them to put new pay offers to a vote “to ensure strikes can only be called once negotiations have genuinely broken down”.
Neil Carberry, head of the Recruitment & Employment Confederation, a business group, said this could prolong industrial disputes, while Kwarteng’s drive to make benefits claimants work longer hours would make little difference to the size of the UK’s workforce because “there is no point forcing someone to an interview they are unprepared for”.
The main criticism of the chancellor’s plan, however, was that it is unlikely to lead to the sustained rise in economic growth that would be needed to spread the benefits more widely.
Samuel Tombs, at the consultancy Pantheon Macroeconomics, said any boost to gross domestic product would be modest, because “the biggest winners . . . are high earners, whose expenditure is not that responsive to changes in their income”.
Meanwhile, the chancellor had not yet set out his plans for public investment, which had a much bigger effect on long-term growth than tax changes, or for the uprating of benefits next year. “We believe the economic outlook has not been transformed by these tax cuts,” Tombs said.
“The UK has been cutting personal and corporate taxes for more than a decade,” said Alfie Stirling, chief economist at the New Economics Foundation, a think-tank. “We already know how it ends: stagnant wages, collapsing public services and stalling life expectancy.”