Douglas McWilliams, deputy chairman of the Centre for Economics and Business Research (CEBR), has an interesting comment on the ill-fated mini-Budget announced by Kwasi Kwarteng (pictured above).
He says the Chancellor’s failure to show the Government’s workings to markets (with complete costings and independent analysis) made the plans look more spendthrift than they really are.
It takes some explaining, but the CEBR’s argument boils down to this:
- The Government’s own costings are “on the high side”. For example the cost of abolishing the top rate of tax and the reintroduction of VAT relief for tourists will raise revenue, rather than cost it, the think tank says.
- The estimates take no account of “fiscal drag”. Fiscal drag occurs when tax thresholds do not rise in line with inflation and wages, meaning the Government pulls in more income tax simply by keeping rates the same.
- Growth of tax revenues from goods that are rising in price and rising wages will be faster than the growth of public expenditure, which is being frozen on current plans.
- The cost of the Government’s energy support package will fall as the price of gas falls. The European benchmark price is about €193 per megawatt hour today, well below the high of €345 hit earlier this year.
McWilliams says this means that CEBR’s estimate for borrowing in 2023/24 falls from £154bn to £64bn after adjustments, with the figure for 2024/25 falling from £80bn to a “tiny surplus”. He adds:
“It would appear that the Chancellor has managed to burn his reputation for fiscal prudence for no good reason at all. He would have been so much better advised to have done his sums before presenting his budget to the markets.”