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A call at the weekend by Finance Minister, Conor Murphy and his counterparts from other devolved governments to UK Chancellor Kwasi Kwarteng to reverse the damage caused by his recent mini budget appears to have been listened to in part, with the Chancellor rolling back this morning on some of his decisions, most noticebly the proposal to scrap the 45p tax rate.
In an announcement this morning the Chancellor claimed that his new rate was a 'distraction' and he has now decided not to abolish it.
The three finance leaders had called an urgent meeting with Chancellor Kwasi Kwarteng to discuss immediate actions needed to reverse the damaging effects of the British Government’s tax proposals.
Minister Murphy, Welsh Finance Minister Rebecca Evans and Scottish Finance Minister John Swinney highlighted the profound impact of “the largest set of unfunded tax cuts for the rich in over 50 years” warning that it is “a huge gamble on the public finances and the health of our economy”.
In their letter to Mr Kwarteng, they warned against being condemned to another decade of austerity and express deep concern over reports that Whitehall Government departments will be asked to make spending cuts to balance the budget, which may have profound consequences for devolved budget settlements already eroded by inflation.
The Ministers also renewed calls for the British Government to provide targeted support for households and businesses, funded through taxing the windfall gains in the energy sector. In addition, they call for additional funding to increase Social Security benefits to support low income households with the higher costs they will face through winter, and request additional resources for the devolved governments to protect public services and to fund public sector pay settlements.
The Letter
Dear Kwasi
The UK Government has taken a huge gamble on the public finances and the health of our economy. Even prior to last Friday, the UK, like many other countries, was already facing the most severe economic upheaval in a generation. However, the UK Government has chosen to make things significantly worse by announcing a huge package of tax cuts for the most wealthy without any credible explanation of how these will be paid for. Urgent action is required now to address the issues facing our economy, public services and households across the country. Such action cannot wait until the update you have announced will take place in November.
Your statement on 23 September provided little respite for many families across the country who are already facing a winter unable to afford essentials such as food or to heat their homes. Instead, we got the largest set of unfunded tax cuts for the rich in over 50 years, sparking economic and financial turmoil that will have a profound impact on the lives of millions of people: the pound fell to a 37 year low against the dollar; the cost of government borrowing rose to its highest level in over a decade creating instability in the bond market and pension fund sector which required an emergency £65 billion intervention by the Bank of England to stabilise the system. Meanwhile over two fifths of mortgage deals have been withdrawn as interest rates are expected to rise significantly to offset the inflationary impact of the measures announced last week.
The Bank of England’s extraordinary intervention has provided some short-term stability to financial markets but the UK Government must act now to restore confidence in our public finances and limit any long-term damage to the economy. The House of Commons must be recalled immediately so that you can begin to re-evaluate your package of tax measures, starting with immediate reversal of the abolition of the Additional Rate of Income Tax.
We are also deeply concerned at reports that UK Government departments will be asked to make spending cuts to balance the budget, which may have profound consequences for our devolved budget settlements. These are already under extreme pressure and we must not see our people condemned to another decade of austerity.
We repeat our call for further targeted support to help households and businesses, in particular small businesses, who are struggling most in the current crisis. This should be funded by taxing the windfall gains in the energy sector rather than passing the cost to households through higher borrowing. We also call for additional funding to increase Social Security benefits to support low income households with the higher costs they will face through winter, including a £25 per week uplift for Universal Credit and legacy benefits.
We have made clear that inflation has already eroded the devolved budget settlements announced last October yet you have refused to provide a single additional penny for public services or to increase public sector pay. It remains the case that additional funding is urgently needed from the UK Government to support our vital public services in the face of rising prices, energy costs and wage pressures. Our budgets are already stretched beyond the maximum and as responsible governments we are having to make very difficult decisions to balance our budgets, as we do not have the flexibility or borrowing powers that the UK Government has. This approach is unlikely to be sustainable and is putting services at risk.
It is also important that we see full forecasts from the OBR as soon as possible and we understand that the OBR has now said these can be ready for the end of October.
With the crisis deepening and the prospects for the economy deteriorating by the day, it is essential that you take action to reverse the damage these policies are causing, for the benefit of all parts of the UK. We also seek an urgent quadrilateral meeting with you to discuss this further.
This letter has been copied to the Chief Secretary to the Treasury and the Secretaries of State for Scotland, Wales and Northern Ireland.
Yours sincerely
John Swinney BPA/MSP
An Leas-phrìomh Mhinistear agus Ath-shlànachadh Cobhid, Riaghaltas na h-Alba Deputy First Minister and Cabinet Secretary for Covid Recovery, Scottish Government
Rebecca Evans AS/MS
Y Gweinidog Cyllid a Llywodraeth Leol, Llywodraeth Cymru Minister for Finance and Local Government, Welsh Government
Conor Murphy MLA
Minister of Finance, Northern Ireland Executive
