Treasury denies allegations of gambling with economy as pound falls below $1.10
The Treasury has denied allegations of gambling with the UK’s economy as the pound fell below $1.10 for the first time in almost 40 years following yesterday’s mini-budget.
Paul Johnson, director of the Institute for Fiscal Studies, said Britain will go on an “unsustainable path” of borrowing following the reforms – the most radical in a generation.
“Borrowing is going to be a huge amount higher than the Office of Budget Responsibility or the Treasury thought at the last fiscal event back in March, at well over £100bn a year into the indefinite future,” he told BBC Breakfast this morning.
“Unless something remarkable happens, we’re going to be on an unsustainable path in terms of borrowing and, at some point, we’re likely to have to have tax rises to offset some of these cuts, or some cuts in spending.”
The Treasury rebutted the accusations saying tax cuts were not a gamble but a necessity.
“We can’t continue having high taxes, we can’t accept lower growth than we would like because the people in this country want higher wages,” chief secretary to the Treasury Chris Philp told Times Radio today.
“They want better standards of living, they want to see money invested in public services, they want to see investment, they want to see their children having a better future than they do.
“If we are going to deliver those aspirations, which we do want to do, the only way to do that is through a growth plan.
“So, it’s not a gamble, it’s a necessity.”
Unveiled yesterday morning, Kwarteng’s mini-budget involved scrapping hikes to national insurance rates as well as the introduction of the health and social care levy, City A.M. reported.
Additional measures included slashing stamp duty, ditching the 45p higher tax rate and removing the increase on alcohol duties.
Kwarteng also scrapped the previously announced six percentage point hike in corporation tax as well as the cap for bakers’ bonuses.
Despite the City rejoicing, analysts warned the budget “risks a confidence crisis in the sterling” as the pound plunged to below $1.10 for the first time since 1985.
Former US Treasury secretary Larry Summers told Bloomberg on Friday afternoon that the UK was behaving like “an emerging market turning itself into a submerging market.”
“There’s nothing in the pattern of market response in the UK, that suggests anything but fear rather than confidence in the policy approaches being taken,” Summers said.
“It would not surprise me if the pound eventually gets below a dollar if the current policy path is maintained.”