UK Prime Minister Liz Truss and Chancellor Kwasi Kwarteng have been branded “reckless and irresponsible” by a Labour front-bencher for announcing tax cuts that benefit Britain’s rich in the middle of a cost of living emergency.
Rachel Reeves, the shadow chancellor and a former economist at the Bank of England, said the UK’s biggest tax cuts in half a century had already wreaked havoc on financial markets and would disproportionally benefit high earners.
Ms Reeves accused the prime minister and chancellor of “behaving like two gamblers in a casino chasing a losing run” with their financial package unveiled last week. Ms Reeves said the Tory government should be mindful of how tax cuts would affect financial markets and also public opinion. The plan unveiled in the mini-budget on Friday put markets into a spin and sent the pound spiralling to a record low.
Ms Reeves backed Labour leader Sir Keir Starmer’s statement that he would reinstate the 45 per cent top rate of income tax if he were in government. Mr Kwarteng last week announced that the top 45p ($0.48) income tax rate on earnings of more than £150,000 a year would be scrapped, leaving the highest rate at 40p.
“The idea that trickle-down economics making those at the top richer still will somehow filter through to everybody else, it’s been tried before and it didn’t work then, it won’t work now,” Ms Reeves told Times Radio.
“So financial markets are unimpressed, the British public are unimpressed and I think that the chancellor and prime minister need to take note because they’re not gambling with their own money, they’re gambling with all of our money and it is reckless and it is irresponsible as well as being grossly unfair.”
In a separate interview with BBC Radio 4’s Today programme, the shadow chancellor said Mr Kwarteng had “fanned the flames” of the falling pound by hinting at further unfunded tax cuts, which she called “incredibly concerning”.
The Truss administration used more than £70 billion of increased borrowing to fund the tax-cutting plan. The Institute of Fiscal Studies said only those with incomes of more than £155,000 would be net beneficiaries of the Conservatives' tax policies, with the “vast majority of income tax payers paying more tax”.
Sterling plunged to a record low against the US dollar early on Monday morning following the Tories’ tax cuts and higher interest rates knocked international confidence in the currency. The pound fell by more than 4 per cent to only 1.0327 dollars in early Asian trading, having already tumbled on Friday after the mini-budget. The decrease was the lowest level recorded against the dollar since decimalisation in 1971 and adds to a months-long fall in the pound's value.
This will inevitably lead to higher prices for British consumers over the coming months and years.
Samuel Tombs, an expert at Pantheon Economics, said inflation was likely to increase by about 0.5 percentage points in 2024 because of recent falls in the pound.
Inflation in July hit a 40-year high at 10.1 per cent, before dropping slightly to 9.9 per cent in August.
Energy bills are likely to increase as the pound falls ― the price of all gas the UK uses is based on the dollar ― even if the gas is produced in the country.
'We are facing a national emergency'
In a speech to delegates at the Labour Party conference in Liverpool later on Monday, Ms Reeves was equally scathing about the Truss administration’s handling of Britain’s economic woes.
She said the UK was “facing a national emergency” with people’s wages not keeping up with the rising costs of food and fuel. Ms Reeves added that the mini-budget had “failed” to address the issues at hand.
Rather than helping the poorest in society, she argued Mr Kwarteng’s package had merely delivered a tax cut for the wealthiest 1 per cent in society. Ms Reeves said an increase in bankers’ bonuses had contributed to more than £50bn annually being contributed to the national debt.
She stressed the plan was “not what anyone voted for” and vowed “Labour will fight it every step of the way”.
Ms Reeves also repeated her party's call for a windfall tax on the profits of oil and gas companies. She claimed that Ms Truss was "content to let energy giants pocket the cash and leave your children and your grandchildren to pick up the tab.”
She also criticised the Tories' decision to lift a ban on fracking, saying that the practice of using the drilling method to extract oil and natural gas from deep within the Earth is dangerous and harmful to the planet.
Turning to climate change, the shadow chancellor said the costs of present inaction would lead to “far greater costs” for future generations. She pledged to be “Britain’s first green chancellor” if Labour wins the next general election, scheduled to be held no later than January 24, 2025.
“The next Labour government will create a national wealth fund so that when we invest in new industries, in partnership with business, the British people will own a share of that wealth and the taxpayer will get a return on that investment," she said.
Ms Reeves said Labour would open electric battery factories in the UK, increase offshore wind production which would drive investment in ports, and inject new life into the UK’s industrial heartlands. She said Labour policies would lead to a zero-carbon economy in which “made-in-Britain” products would play a central role.
