Comment by pooper | Hacker News Reader

Comment by pooper | Hacker News Reader

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» The September 2022 United Kingdom mini-budget was a set of economic policies announced by the Chancellor of the Exchequer Kwasi Kwarteng on 23 September 2022. Although not an official budget statement, it was widely referred to by the media as a "mini-budget". Among the policies announced by Kwarteng were: bringing forward the planned cut in the basic rate of income tax from 20% to 19%; the abolition of the 45% higher rate of income tax in England, Wales and Northern Ireland; the reversal of the April 2022 increase in National Insurance; and the abolition of the proposed Health and Social Care Levy.

» The budget, which was unveiled against the backdrop of a cost of living crisis, was immediately followed by a sharp fall in the value of pound sterling against the United States dollar as world markets reacted negatively to the increased borrowing that would be needed. By the next day of trading, the pound had hit an all time low against the US dollar. The statement drew widespread criticism from economists, some of whom feared its reliance on increased government borrowing to pay for the largest tax cuts in 50 years could lead to a situation like the 1976 sterling crisis when the UK was forced to ask the International Money Fund (IMF) for a financial bailout. The IMF took the unusual step of issuing an openly critical response to the budget, saying it would "likely increase inequality".[4] It urged the UK government to "re-evaluate" the proposed tax cuts.[5] The HM Treasury announced plans to outline how the proposals would be costed in November, alongside an independent forecast from the Office for Budget Responsibility.

I don't get it. Why can't the government walk back these changes? Does the prime minister think they will get ousted if they reverse this nonsense?

Once the taxes are lowered and most of the EU regulation removed the UK will become global again. Golden years are ahead. Asia(which experiences biggest economic growth) will start trading like never before with the UK. The U.S will provide Tuss with a bespoke trading deal. Or so they said...

None of that will matter, the German car makers forced the German government to give the UK the finest deal in the history of deals.

I just wanted to point out that your comment is quite useless as unless someone already knows what you're talking about (I don't) then it's basically devoid of any useful.

> Why can't the government walk back these changes?

Largely because they've only just got into power (about a month) after the last prime minister was forced out, and as their first major act, having to walk it back would cause an unacceptable loss of face.

If they are forced to roll it back somehow, which may or may not happen, they get to look like they stuck by their 'principles' and it was other people who lacked faith in the plan.

They can't be ousted easily, party rules give her a year without the possibility of another leadership challenge, but she could start facing open rebellion in the ranks, which might lead the whole thing to collapse, requiring a general election. And right now she'd lose one of those by a country mile.

Why would they want to walk back these changes? My take on the situations is they are doing exactly what they want to do - help their rich pals make more money. Kwarteng's background [1] especially seems very interesting (worked at a hedge fund, friends with oil industry, etc).

[1] https://en.wikipedia.org/wiki/Kwasi_Kwarteng

Because they believe that tax cuts will ultimately stimulate the economy at a time when people are experiencing increased cost of living.

If that is correct then they should hold on through market wobbles and some heat in the media as economic growth will ultimately pay for it.

Im not defending the specific implementation and timing, but the theory is sound.

> Because they believe that tax cuts will ultimately stimulate the economy at a time when people are experiencing increased cost of living.

It doesn't make any sense from what I understand because we are raising interest rates to cool down the economy and lowering taxes to heat up the economy. I am not an economist but I think we should be pushing in the same general direction.

Interest rates move the Inflation Tax to the Mortgage Tax. That's the idea.

What the government has done is cut corporate taxes and left it to the Bank of England to raise the Mortgage tax.

Those paying for the government's investment idea will be those paying mortgages and those selling houses.

There's no difference here to cutting corporation tax and putting up income tax to compensate.

Not really because the changes caused higher (anticipated) interest rates which will have the opposite effect on the economy. Also removing the 45% tax rate would not have had any measurable impact on the economy aside from the aforementioned negative one, it was just a pointless handout (hence the crisis of confidence).

What the government actually needs to do is to get back confidence so that interest rates don’t have to go so high to compensate for the loss of confidence. They could do that by walking back the changes and appointing an experienced and “safe” chancellor.

High interest rates is the point of the change. Those in charge believe low interest rates discourage investment.

The campaign promise was to increase interest rates - even going as far as removing the central bank and raising the rates themselves.

Not so much removing the central bank as instructing them directly - as they have the power to do under s12 and s19 of the Bank of England Act 1998

The prime minister is a lunatic beholden only to a selectorate of other lunatics

> I don't get it. Why can't the government walk back these changes?

The lion's share of proposed borrowing is going toward subsidizing energy bills for the public and for businesses for at least the next 6 months. Walking back the tax aspect might please some but it isn't going to make any real difference, aside from political suicide.

I also don't think walking back the energy subsidy is going to win much approval from anyone either.

Mortgage interest rates in the US are nudging 7% and the UK is going to follow the same path regardless of any interventions. Almost all other currencies are also falling sharply against the dollar, btw.

They only have to walk back the tax cuts. It is unfunded borrowing that is spooking the markets, not borrowing itself.

How were the energy subsidies going to be funded?

Other European countries are using windfall taxes on energy companies.

https://www.bbc.com/news/business-63089222

(I'm not sure if that's the same tax as e.g. Germany has recently announced, or a separate one.)

The vast majority of the unfunded borrowing is paying for the energy bill subsidies, at least up until the next general election (and who knows what will happen after that). The IMF have also specifically warned against those blanket subsidies, not that you'd know this from the BBC's coverage of their statement for some reason, and there are really fundamental economic reasons why they're likely to tank the pound and force the BoE to put interest rates up to do with balance of payments and the global supply of fossil fuels. This is probably less obvious from the media coverage because most of the reporting on the size of those tax cuts seems to quote a hypothetical figure for how much they'd be worth in 2025-6.

Technically most of the changes haven’t become law yet. We still have a parliament who needs to approve it

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