Kwarteng’s economic vandalism still intact after Tory top-rate tax U-turn

On and on went the refrain: we have to do this. We had no choice. We need to get the UK economy going again. And we’re not turning back. Now? With the Tory conference under way – minus a significant chunk of Tory MPs – it’s turn, turn, turn!

“We’re listening to people,” said the chancellor as he announced the decision to reverse the planned 5p cut to the 45p top rate of income tax. Kwasi Kwarteng is a man who has been proving that terribly clever people can still commit acts of breathtaking stupidity.

Really, he is like one of those pedestrians whose constant pecking at their iPhones makes them so oblivious to their surroundings they’ll cheerfully walk into a stream of traffic. In this case, with a helpful shove from best pal Liz Truss.

Truss, who said the top-rate tax cut was Kwarteng’s idea, was characterised as “malleable” by one commentator, which is hilarious. She is about as malleable as the two lumps of coal that will be about all hard-pressed Britons can afford for Christmas. Bung it on the fire with the last of the furniture.

The U-turn on the top rate of tax was about bowing to the inevitable. You don’t hold a vote you know you can’t win in either politics or business. And this was a vote Truss and Kwarteng couldn’t win. When former chief whips and ex-cabinet ministers broke cover to signal their intention to rebel, it was unsustainable.

But here’s the problem: Britain is still sailing towards an iceberg. The top-rate tax cut was the biggest political problem with Kwarteng’s monstrous and amoral mini-Budget. It was the one that was zeroed in on by voters, moderate(ish) Tory MPs, and all but the most sycophantic of media commentators.

But in terms of the overall package, the decision to cut the 45p rate of tax was merely the tiny bit of the iceberg visible above the water. It still has £43bn of tax cuts under it, most of which will benefit the wealthy or corporations. A substantial chunk comes in the form of a national insurance reduction, which primarily benefits the better off. There’s also the reverse of planned corporation tax rises. That is of most help to big, profitable companies.

The strugglers; high street retailers, pubs and so on, are going to get clobbered by a forthcoming 10 per cent rise in business rates, which are based on property values. As I said last week, if he wanted to boost business, Kwarteng should have addressed this. He cut the wrong tax.

With all this largesse still being splurged on the rich and fortunate, there is still the problem of how to balance the books, which is what the UK needs to do if it is to fund things such as the flawed and hugely expensive, but necessary, package of energy support.

Oxfam clearly fears the answer, having hurried out a statement in response to the U-turn. “It is essential that ministers don’t seek to balance the books on the backs of people struggling to pay the bills and feed their families – public services, welfare and aid are all needed now more than ever,” it said.

The charity was right to speak out because that’s where it looks like Kwarteng’s axe is going to fall.

The BBC described the top-rate reversal as “a major U-turn”. It is not that at all. The rebel Tories attacked a totem. They got removed. But there is little reason to feel optimistic. Truss has not suddenly become malleable. Kwarteng has not suddenly become competent and sensible and the hole in the public finances created by their economic vandalism still needs to be filled.

Once again, the markets knew. Their reaction said it all. The Primark pound recovered a bit, but only a bit. It’s still on the international sale rail. The Gilt market cheered up a little too, but lenders are still demanding a hefty premium to invest in the UK. As for the FTSE 100? It fell.

True, the terrible twins at the top of British politics haven’t ruled out further U-turns. But they’re also still talking about their commitment to a right-wing economist’s fever dream.

Interest rates are still going to squeeze Britain’s borrowers. Food banks are still going to be in danger of running out of stock when benefits undershoot inflation, as they likely will. The NHS is still struggling to attract and retain staff. Schools are still going to have to start laying off teachers.

After this supposed major U-turn, what has changed? Not much.