Kwasi Kwarteng has been handed independent forecasts on the state of the UK finances that are expected to show a hole of more than £60bn left by his sweeping tax cuts and a sharply slowing growth outlook.
Sir Charlie Bean, a ex-member of the independent watchdog and a former Bank of England deputy governor, said the document would probably show a large shortfall for the exchequer.
“It will be in the order of £60bn to £70bn relative to its previous forecasts,” he said, adding that Kwarteng would face three options: further U-turns on his tax-cutting plans, deep cuts to public spending, or risking the ire of already rattled financial markets by substantially adding to the national debt.
“What he’ll be confronted with, and I don’t think to be honest most observers and MPs have really woken up to this yet, is the extent to which the public finances has deteriorated since the spring,” Bean said.
Liz Truss has replaced Boris Johnson as prime minister of UK. The first obvious step intended to show the direction the new government intends was a budget presented by new Chancellor Kwasi Kwarteng on Friday. Kwarteng fired the Treasury's permanent secretary in the preperation of this budget. There is a cost of living crisis in UK driven by runaway inflation and massive increases in energy bills. Despite this, Truss and Kwarteng's budget benefitted the already stinking rich. The top rate of income tax of 45% for the highest earners was abolished so that the highest rate is now 40%. Clearly that's going to benefit the rich and the very rich most. Despite denials, this is trickle-down economics with the idea being that the economy will be stimulated by the highest earners and that benefits will trickle-down to all. There is a simple, logical argument against trickle-down economics. It is that the rich already have money that they can spend to stimulate the economy and they're not doing it, if they're already not spending their wealth, why should they now start? There is also an alternative, logical argument that to stimulate the economy it's best to instead help the poor. The argument is that the poor are desperate and that any money they receive to alleviate their wreched situations will be spent and therefore stimulate the economy. It appears that Liz Truss and her Chancellor Kwasi Kwarteng are pursuing outdated, discredited and abandoned economic theories which are the exact opposite to what is needed. Markets responded poorly to the budget.