Pound plummets as UK government announces biggest tax cuts in 50 years

It's amazing how many MPs I came across today who were looking at their phones and looking at graph lines and they were the graph lines showing the

pound

sliding against the dollar, the graph lines showing the cost of

government

borrowing going up and recently when MP He was just showing me a future, a city projection of what interest rates are going to be like in this country, uh, it's just a forecast in the city, but it was absolutely stunning. The other thing that really catches your attention is the shape. that Liz Truss'

government

is behaving like a new government with its own people's mandate for a bold new direction of travel, but that is not what this trust brought there, she is there because of a Conservative leadership contest in the one that did not obtain so many parliamentarians. the first round, uh, supporting it and a terribly hearing MP is going around and using words like Reckless and Madness today one of them actually joked with me that there might be letters demanding a vote of no confidence.

I think they were joking, they weren't. It is abundantly clear that we now have new battle lines in politics that will define the battles at the Party Conference and beyond and we are in the early hours of a great new economic experiment in this country. He called it a mini budget. It was a giant turnaround from Direction announced the

biggest

tax cut package since 1972, financed by borrowing at a time of high inflation. The chancellor, thank you, thank you, just over two weeks in office was applauded by opposition MPs when he declared that this Conservative government was going to do things differently to his predecessors.

Mr. President, we are at the beginning of a new era and as we contemplate and as we contemplate you are real a new era a new era and as we contemplate and as we contemplate this new era we recognize, we recognize, Mr. President, that there is enormous potential in our country, confirmed the government would implement Liz Truss's leadership's campaign promises to reverse the National Insurance rise and cancel the corporation tax rise, then added a surprise new tax cut for higher earners. I have another measure Mr President, I have another measure High Tax rates damage Britain's competitiveness.

Take the additional income tax rate 45. It is currently higher than the overall top rate in G7 countries like the United States and Italy, but I am not going to reduce the additional tax rate today. to abolish it completely from April 23 we will have a single higher rate of income tax of 40 per cent if we add the government tax

cuts

and someone on a salary of £20,000 a year will earn £157 someone earning £200,000 a year will earn 5,220 someone for a million a year will be £55,000 better off for too long in this country we have indulged in a fight over redistribution yes we now need to focus on growth not just how we tax and spend We will not apologize for managing the economy in a way that increases prosperity and living standards.

Our sole aim is to make Britain more competitive globally and not lose out to our competitors abroad. Some Conservative MPs applauded the repeals of policies they had recently voted for. Workers said it was all evidence of Tory failure, can I thank the Chancellor for his comprehensive demolition of the record of the last 12

years

, his vicious circle of stagnation early this morning, before the Chancellor's statement, the

pound

already was falling against the dollar based on what the markets knew it was As the chancellor delivered his statement with surprise additional tax

cuts

financed by loans, the pound fell further.

He was asked what he thought of the market's judgment on his announcement the market the markets uh reactors will but the growth plan the growth plan uh very soon we will show that we are on the right track the chancellor said the budget would have an immediate impact in this country's economy abroad Conservative chancellor Anthony Barber's 1972 budget was the only comparable tax giveaway on record a rush for growth that soon fueled inflation and brought economic pain we have decided on the

biggest

spending cut ever made by of the government and city councils was essentially a kind of demand preparation experiment this is the opposite of that what we are trying to do is create incentives and also consider supply side reform it is a completely different model the promising wave After a wave of government deregulation reforms tightening laws around making strike action planning more flexible for business zones, some think they may struggle to get this economic experiment off the ground.

I would expect it to end in a sterling crisis, with the exchange rate falling and the Bank of England being forced to raise interest rates to deal with the fall in sterling. How quickly could things go wrong? Well, it's not easy to predict. I would be surprised to know that we have gone more than six months without many problems. A sterling crisis within six months. Well, you could argue that it's already happening. The new Chancellor, the new Prime Minister, if they were sitting here, they might say: typical of Treasury orthodoxy old-fashioned thinking yes, well, of course they would be right.

I'm describing old-fashioned thinking, but it has lasted for a reason and the reason is that no one has tried alternatives to spending in the hope that income will increase. It hasn't worked Liz, we have to be honest, we have to be honest, borrowing to get out of inflation is not a plan, it is a fairy tale. Rishi Sunak did not appear to repeat that attack today, but many of his former supporters are doing so. Privately, Maria High, the size of her donation surprised some Conservative MPs as much as it markets the government's needs, but Gary Gibbon may be hard pressed to get early proof of the policies' success and this was the reaction from Democrats liberals and the SNP has left the concerted government totally disconnected at the knees of the British people, either they do not understand it or they do not care that people are seeing very high bills for their energy, for their food, for their mortgages, this is not the economic plan The Chancellor comes here today, the sixth Chancellor in seven

years

, after asking us to believe that the things he voted for and supported just a few months ago were all right at the time, but the need is completely reversed now a new era but they have been in government for 12 years he extends his credibility Beyond the breaking point break for growth the chancellor outlined a plan to introduce new low tax investment zones our policy correspondent Paul McNamara is in Liverpool One of the 38 areas We are already in talks with the government, so Paul, what are these investment zones?

Are they different from business zones? Does Liverpool want them well? that could boost investment is welcome, sorry, it's actually a very loud boat behind me that is flashing its horns right now. I'm not sure how quickly these reversal zones will appear. The idea is that each investment zone will be able to offer its own tax cuts business rates relief National Insurance and the idea is that this will boost investment. There are 38 regions with which the government is in talks. The Liverpool City Region is one that is talking to many local authorities, although it is at the discussion stage.

He told me that his talks were in their infancy, we expect a later announcement from the Department of leveling up because of course this will be seen as a way to push for that leveling up, but to get all of this passed the government will include policy reforms environmental. local regulation and planning policies policies and regulations that the environmental lobby says have been hard fought for and today these groups have almost universally condemned what could come at this moment to undo that regulation in one of the worst places in Europe for wild life. and natural populations and habitats is absolutely unthinkable, we have targets set for 2030 to stop the decline of our biodiversity, in fact, in some cases, even to start improving and restoring it, and we will never get there if we undo this valuable thing. protection, this is a significant and very worrying step backwards.

Well, the financial markets have given what could euphemistically be called a negative reaction to the possibilities of expression. Our economics reporter Neil McDonald is here. I guess they weren't crazy, right? Was it right just as the Chancellor was announcing a very large increase in government borrowing? There was also a very large increase in the cost of government borrowing and that is clearly a dangerous combination, which is why the government wants to reduce taxes to boost economic growth and the plan. is to finance those tax cuts by borrowing money so you need the financial markets to act and lend you that money and obviously there's a question from Mark about what price they're going to do that and what we saw today was a really dramatic increase in the rate of interest that those markets demanded on government loans, so in January the government could borrow for five years at an interest rate of less than one percent.

You can see that until August it is about one and a half percent and then in the last few weeks. has really shot up and today it shot up to 4.1 percent and if you look at the way things played out today you can see that after a quasi quarter, interest rates went up about half a point, now interest rates have been rising around the world this year. but I think if you look at that pattern, it's very difficult to explain, given events happening elsewhere and that's a pretty harsh initial verdict on the Chancellor's first budget, so why would investors in the markets don't like this?

It's not the debt that's going to be used to freeze all of our energy bills because, at least in theory, that should be temporary. The problem is that the government has added to that a lot of very large, permanent tax cuts, and there is a question as to whether that puts our public finances at risk. an unsustainable path, so in March, the latest official forecast for public debt, total public debt is a share of our national income, is seen rising to about 85 percent of national income and then disappearing, now the "yes" they say this is where it is.

They go away with quasi-quarter tax cuts and you and the viewers can see that line heading in One Direction and of course investors can see exactly the same line and your question is: is there any real plan from the chancellor that recover that line? and the government simply says it will be paid for by growth, yes, and it is true that of course there should be an initial push to growth this winter because the government has prevented people's bills from increasing. I think the problem is that the government What they have is that they talk about many of these ideas as if you knew the business zones.

It's very difficult to put any kind of hard-and-fast figure on how that's going to drive economic growth because the details just aren't there for you to sit down and work with. quite directly the cost of all these tax cuts, whether there will ever be faster growth to cover them, there are simply no concrete figures to prove it one way or another. Thanks Neil. Well, earlier I spoke with the chief secretary of the Treasury. Chris Philip and I started by showing him a chart showing the pound falling in reaction to the statement. This is what you tweeted immediately after the budget ended.

It's great to see the pound strengthening thanks to the new UK growth plan because for a moment the pound rose. a bit and it has since plummeted, yes there has been a slight movement in sterling, but this is a long term plan and a Chancellor will present his medium term fiscal plan, which will explain how debt to GDP will fall over time. medium term. term and it is worth repeating that we have the second lowest debt/GDP ratio of all the G7 countries, but the market to which we must sell this debt is scared. I mean, Paul Johnson at the ifs says that today the chancellor announced the biggest package of tax cuts in 50 years with our team giving the appearance of an effort to make the public finance figures add up, instead the plan It seems to be borrowing large sums at increasingly expensive rates, putting public debt on an unsustainable upward path and hoping we get better growth.

Well, I don't accept that characterization. There are a couple of points I would like to make first. This is a plangrowth designed to get our economy moving. It contains tax cuts that are important because taxes that are too high hamper growth, but it contains. It also contains other measures, it contains measures to reduce regulation, it contains measures to invest in infrastructure. I would also just say on the point of growth, if we are successful, what we think we will achieve by raising growth above what it would otherwise be, which generates more than the fifth year, if we achieve one percent more growth , an extra 47 billion pounds, so where does that growth come from?

That's the key, because what makes you think that companies that are getting tax cuts now but facing rising labor costs, rising energy costs, then it's not like they have more money, it's just that they're not losing as much money. suddenly they are going to have money to invest and we have seen, we have seen, we have seen Christian, we have seen organizations like the CBI today give a great welcome to this package You show me a single business of things that increase their taxes from 19 to 25, Of course, it's a good idea. Growth like this you claim you will get one percent growth.

Where does the growth come from? It's not a hope, it's a plan. which has been laid out in some detail, we're talking about, you know, revitalizing our financial services sector which historically has been very strong, we're talking about investing in infrastructure, why do you think companies are going to have money to invest? That's what I'm saying I mean you know you give with one hand and you take away with the other because you're going to have rising borrowing costs rising energy costs rising labor costs because there's a massive labor shortage. you're not doing anything about it, well, we're going to have people with high skill levels, uh, who will be in charge.

High wages are welcome where there are lower-skilled jobs, you know, and there are shortages, or we want to see companies investing in technology and automation, and hand in hand with that we want to see people who are less economically active than they could return to the labor market the Bank of England will have to raise interest rates which means higher borrowing costs, mortgages, rents for 22 years, the Bank of England governments have worked together to try to keep inflation low and growth sustainable now you are pulling in opposite directions the bank of england is doing its job responding to the challenge of global inflation what is the low demand and you are trying to boost it no it doesn't make sense no no no we are not trying to increase demand what we are trying to make is the difference with the fact that the objective of this plan is not more money to spend, the objective of the plan is not to increase demand, but to stimulate genuine economic growth, it is not about stimulating consumption, it is about encouraging and allowing Well, the bank makes it clear that it does stimulate, it is inflationary, but my opinion is that the inflationary phenomenon that we are seeing not only in this country but throughout the Western world is partly a monetary phenomenon, partly it is a reaction. to the war in Ukraine is partly a reaction to things like an increase in post-supply demand, partly it is due to disruptions in supply chains, particularly in China.

I don't think my personal opinion is that I don't think the fiscal measures announced today are going to significantly or even increase inflationary pressures at all, what about equity? How is it fair that the very rich get a huge, disproportionate £55,000 tax cut if it wasn't £1m a year if you were a chief executive? For a million pounds you get a £55,000 rebate on this tax cut, while the cleaner who cleans your business gets virtually nothing. How is that? I just don't forget that the top one percent of earners are already paying about 28 of all income tax. I also forget, if I may say, all the other measures that have been introduced, I mean the £37 billion intervention for energy.

There was £400 for everyone, but the lowest 8 million people got an extra £650. You say it's fair. The lowest earners now not only pay almost no income tax, they also pay almost no national insurance and if we look at this package as a whole, yes, it's fair because everyone gets help, everyone gets a tax cut, yes We analyze it together, it is a fair package, but the most important. The thing is, we're not being driven by MD type of politics, we're in an aspirational country where everyone wants to work hard, get ahead, keep a little more of their own money and, if our economy grows and all this plan.

It is oriented around growth, we will see higher wages, we will see more jobs and we will see greater tax revenue that will pay for public services such as educational police and schools. Growth is at the center of our vision and that is what is carefully thought out today. our plan is designed to deliver Chris philp, thank you very much, in fact, thank you, joining me now is the hidden possibility that Rachel Reeves from the Labor Party, how do you know this won't work out well? Let's see the verdict of the financial markets today. seen the pound fall to its lowest level in 37 years government borrowing costs rise in fact borrowing costs for everyone are rising So a family with a mortgage, a company looking to invest, costs for everyone are rising and that's because the package Today, totally unfunded tax cards give the markets a lot of room to worry and that's why they might be listening to you is unwise.

I mean, aren't you in danger of deterring Britain? I mean, the markets are just investors in the end, today look at the news if I were to have such power that the markets are coming to their own judgments based on today's package of measures. Larry Summers, former US Treasury Secretary, also said today that he can't think of a country in the developed world that has a less sensible macroeconomic policy, okay, so what would you do? That's the question. . I mean, would you keep pace with the Bank of England and not introduce any tax cuts, any kind of stimulus to achieve growth, just let us stay in recession, it's clearly not Christian and we've been saying for months that the government needed to do more to help people with their energy bills, but this government, now that it has introduced a price cap, is doing it through loans and we are saying that the energy companies that are making huge windfall profits due to the increase exponential in the oil and gas prices that they should pay, we talk about that a lot, I mean, I'm talking about what would you do for growth, not for the energy plan, I mean, a lot of times you would tax things.

It is an important point because the economy needs support and people need help with the cost of living. It's not going to raise questions when the question is how do you pay for these things and if you pay for everything by borrowing, that's what puts pressure on financial markets about sterling and cost borrowing, but let's take other steps. I have argued that instead of cutting corporation tax for the largest and most profitable companies, a government should expand investment subsidies to help companies that are actually making investments to improve productivity and growth rates and that we should also reform the business rates system to help our small businesses and mainstream businesses thrive;

That is the way to achieve economic prosperity and growth in all parts of the country instead of doing it in dribs and drabs. The reduction approach that this government is applying, which frankly simply will not work, the only thing that is evident is that trickle-down does not work. You will have to go to the next elections, although aren't you saying that you will have to increase? taxes that will be the question you will ask at each stage you will have to increase taxes you will have to say yes because that is it or cut public services, remember Krishnan that the conservatives have raised taxes 15 times in the last two years, which is why the tax burden was at an all-time high, so look, we welcome the reversal of, for example, the increase in the National Insurance contribution, but we believe that taxes should be fair and that means asking those with the biggest shoulders wide. pay a little more to raise the 45 tax again.

I don't know if a 45 tax cut is going to be implemented because this afternoon I have spoken to many Conservative MPs who are amazed that this is the government's priority and that it has to come to vote in the House of Commons and we will fight everything and Claude to stop that tax cut going ahead because, as you said in your previous interview with the Chief Secretary to the Treasury for someone earning a million pounds, that is a cut of taxes £50,000 more than a nurse earns during the year and it really sticks in our throats when people are facing a cost of living crisis only to prioritize those on higher incomes Shadow Chancellor, thank you Thank you so much.

Well, this government is on the side of the British people, according to the Chancellor. It depends on which British people you are talking to. Perhaps for those fighting from below it may be difficult to think that this is a budget with them in mind. For people on low incomes, a cut in the basic tax rate offers relatively little and for those on benefits, their budget dividend is a threat of sanctions if they don't work harder to get back to work, our Social Affairs editor, Jackie Long , reports from Hastings, one of the most deprived seafront areas of the country, the weather is deceptively warm for autumn, but everyone still knows what is coming and this year more than any other there is real concern, fear even about what winter will bring, we're really on a deadline, we're talking. first cold snap at a local community center a winter preparedness meeting run by the heart of Hastings is a coalition of voluntary groups and charities with an agenda item basic needs we want to meet we are talking about heating lighting food there is an urgency here but it's also familiar that these groups are working together during the covid pandemic and saying that this crisis is so alarming as we're still getting that vibe that people have realized that this is on the same level.

Carol, 72, lost her husband amid lockdown after almost 50 years of marriage she was left heartbroken struggling to cope with the cost of living crisis a new problem to address alone my basic persona doesn't even cover the field less than the fuel bill which leaves me with nothing to love since I didn't make it into my savings I don't know what I mean she benefits from previous government support but nothing today will alleviate the almost paralyzing fear that eleven in a room feels and I don't understand it I have a gas stove I don't know I don't use the central heating bill and it's tremendously exciting I don't think about things anymore I don't have expectations or I don't know if that's grief or reality I don't know what's strange with the News from the BBC for Sussex I'm Emily Jeffrey, the chancellor almost this government is on the side of the British people.

A question of which side the government is on. The answer for some is the discordant establishment of two new measures, one next to the other, lifting the limit. over bankers' bonuses and the threat of cutting benefits for some claimants, grandmother Julie Mayne says this is a budget for people who are already well off, nothing to help her deal with her mounting debt to her energy company, just the threat of sanctioning benefits he can barely live on. Now the clues are going to help some people who already have a lot of money, but they're not going to help people who don't have a lot of money, right?

And about bankers' bonuses, he would laugh if he didn't feel like it. I think lifting the limits on anything right now is making people like us. To be honest, I feel a little worse because you are lifting the limits on some people who already have enough money, so the climate has changed, but what else changes? To people after today, this cost of living crisis may often seem like something new, a catastrophe born of this particular moment in time, but for many people here that sense of crisis is just a fact of life. Levels of deprivation have increased significantly over the last decade.

They are above skyrocketing inflation and rising energy prices, and the help people need goes far beyond a budget, many or not things like their scars, things like their hot water bottles, things like their blankets. , for all the growth talk at Westminster in the past. community center, they are putting together the absolute basics to helpto help people survive the winter, as well as these warm winter backpacks that will look to create warm spaces where people can go to literally try to stay warm for charity co-founder Hastings heart an extraordinary development in one of the richest countries in the world people never get ahead they never have much hope they have to fight constantly and I have always maintained that it is extremely expensive to be poor it is not reduced to coins phrase it never has never has a rising tide lifts all boats so the cliché says they need it to be true here and soon with too many feelings clinging to the sides I'm getting to next spring it feels so far away Well, Paul Johnson from the Institute for Fiscal Studies, which is an independent research institute, is with me now.

Can you explain to me if everyone who pays taxes gets a tax cut? Why does your body say that everyone who earns £155,000 a year will actually be worse off? If they earn less, they will be worse off as a result of the combination of tax changes that have been made over the last year because, in addition to the cuts we saw today, we are still looking at the point at which paying the income tax allowance begins. personal income tax Frozen for four years, well, when inflation is this high, that means a lot more of your income will be included in income tax, so for most people, around 99 of taxpayers are still going to pay income tax.

We will be worse off in four years' time as a result of the tax changes in this Parliament. Now tonight's story seems to be about market reaction, the pound plummeting, government blame rates rising, how much does that matter? It matters in all kinds of ways. The pound going down is important because it will mean more inflation, it makes our imports, including our energy, more expensive and blame rates, um uh, going up is important because it makes borrowing more expensive for the government, in other words we will have to pay more taxes. to cover the interest on our loans and, of course, there are many, many more loans going on.

We are borrowing a huge amount this year just to cover the cost of the energy package and the borrowing is going to be higher in the long term because of these tax cuts and the government is now saying don't worry, it's okay because the economy is going to grow and that's going to produce £47 billion in five years if we get one per cent growth and that will pay for everything, how will we know if this is working well, I mean, there's a lot of elements to that, I mean, in the In the short term, we will know what is happening with interest rates and we will know what is happening if this impacts inflation in the wrong direction.

In the medium term we will be able to see what happens with the economy, but it is always incredibly difficult to know. To unravel what is driving what now if Russia withdraws from Ukraine tomorrow and the price of energy is at its maximum then the world economy will function much better and also the UK economy that will not depend on what the government has done the government wants the growth we all want growth is a good thing and there are some good things in this mini budget planning reform eg stamp duty cuts , this is the kind of thing that is actually about improving the long-term growth potential of the economy, short-term tax cuts.

They put a lot of money into the economy that will help growth but will be very bad for inflation in the long run. They might help growth a little, but it's really wishful thinking to think that this in itself will add one percent a year to growth. big change and now hopes to use the Bank of England to raise interest rates. I mean, there is talk of the need for an emergency increase in bank rates. I mean, do you see I don't know if there will be an emergency? I would be quite surprised, but it is clear that the Bank of England will raise interest rates considerably further than where they are at the moment and the concern about this particular package is that they will raise them further than they otherwise would have.

I've seen what happened to sterling. They've seen what happened to Guild rates. They have seen an additional $40 billion thrown into the economy. And you just talked to Chris Philip. He is right. The bank has explicitly said that they want to reduce demand to control inflation. £40bn in tax cuts is going to increase demand, so there is the aim that the bank will have more to push again, so there is a danger that this will actually push us further into a recession. It does the exact opposite of what the government does. I don't think it will push us into a deeper recession because in the short term there will be more money in the economy and it might help in the short term.

I think so. The danger of these big tax cuts in the short term is that they can create more pain later, particularly regularly in inflationary environments and the bank will have to work hard to achieve this. let inflation go down