Our models show Kwarteng budget will boost output by £100 BILLION, says DUNCAN SIMPSON

Days after the mini-budget, it seems things are going to hell in a handcart. Markets are jittery. Interest rates are set to keep on rising. The establishment is going Tonto and MPs are panicking. The media circus is well underway, and the polls are responding.

Liz Truss grilled on mortgage prices and borrowing

Just over a week ago - before the mini-budget - we knew that Truss was likely to cancel the corporation tax (£12.4 billion) and national insurance (£17 billion) hikes, cut income tax (£5.3 billion) and stamp duty (£1.5 billion). We had no idea she also planned to cut the 45p rate of tax (which is actually forecast to increase tax revenues by £600 million next year!). The difference is modest, and certainly not enough to trigger an economic spiral. Which begs the question: what’s really going on? For taxpayers, the answer is obvious.

As we said at the time, when welcoming the most taxpayer-friendly budget in recent memory, what the chancellor didn’t do is talk about spending restraint.

It was funded by borrowing, which went up by billions.

But working taxpayers know there’s no such thing as a free lunch. Spending has grown wildly over recent years, and has to be brought under control.

As a proportion of the economy, it’s at some of the highest levels since the 1970s. Many other big, advanced countries - like South Korea, Japan and the United States - spend considerably less than we do.  

The view that public money grows on trees has become very fashionable in recent years. Whether it's a BBC News package on the latest campaign for more money for X, or politicians demanding millions of pounds be put towards Y, the loudest voices have forgotten that all this money ultimately has to come from the taxpayer.

It’s why we reached the highest tax burden in 70 years, and the reason that Britain’s long term growth rate per capita is barely better than France, and lags behind Australia and New Zealand.

Kwasi Kwarteng

Under pressure... Kwasi Kwarteng (Image: GETTY)

Many of the people attacking the mini-budget most vociferously now were also the ones championing that tax-and-spend status quo. But working taxpayers should not be expected to choose between a low-growth option and a borrowing bonanza.  

To reassure them and get a handle on the economic panic, the chancellor has to act. Britain has a cost of government crisis. We have seen an energy intervention of up to £155 billion come on top of spending by government which is forecast to be well over £1 trillion annually for the next five years.

Chief secretary to HM Treasury, Chris Philp MP, did exactly the right thing on Wednesday by asking government departments to find efficiencies. But don’t stop there. Vast amounts can be saved by grasping the nettle on wasteful spending.

Equalising public sector annual holiday entitlements with the private sector could save around £3.6 billion a year by 2025.

Get rid of quangos like the Arts Council, which alone costs around £500 million a year. Extend and expand the cuts to foreign aid, keeping billions available for humanitarian efforts (such as in Ukraine) while saving up to £17.5 billion a year by 2025.

Every saving will have its detractors, those vested interests who cry wolf and can’t accept losing cash. But as the chancellor is now painfully aware, difficult decisions on spending cannot be dodged.

The Government’s strategy of rejecting the sluggish status quo and going for growth is broadly right.

Our dynamic modelling suggests that the measures in the mini-budget could boost economic output by almost £100 billion over a decade.

Britain’s long run growth rate per capita would exceed Australia and New Zealand, and Japan too. Truss’ strategy would be vindicated.

But taxpayers instinctively know that budgets have to balance.

Kwasi Kwarteng has taken the first step, laying the groundwork for growth by cancelling planned tax hikes.

He’s addressed the cost of living crisis with energy price controls and (much more sensibly) an income tax cut. He can do more, of course. But now the chancellor must show he’s serious and tackle the cost of Government crisis.  

  • Duncan Simpson is the chief economist at the TaxPayers' Alliance, a pressure group for a low tax society.
Would you like to receive news notifications from Daily Express?