Monday 03 October 2022 7:13 pm

Kwarteng u-turn bodes ill for many tough fights to come

By: City A.M. Editorial and Andy Silvester

“While the UK economy is resilient, it needs to get its mojo back,” Yael Selfin, chief economist at KPMG UK, said.

A sensible political decision or a sign that this government doesn’t really have the fight for controversial battles? Either way, there’s no question that the decision to u-turn on plans to cut the top rate of tax – just hours after the Chancellor’s team had told newspapers he would ‘stay the course’ – hardly inspires confidence in the Cabinet’s top team. You turn if you want to, a former Tory Prime Minister once said. It turns out they did.

Abolishing the top rate of tax was never going to be a vote winner, but the truth is it makes little difference to the public finances, raising around £2bn a year.

Yesterday’s about-turn was about political optics, not fiscal responsibility. The question now is what appetite this reforming, willing-to-be-unpopular government has to drive through the rest of its programme.

Kwarteng u-turn

If cutting the top rate of tax proved to be too much for restive Conservative MPs, it doesn’t strike us as immediately likely that planning reform is going to be an easier sell: backbenchers are not known for their willingness to allow vast new developments in their constituencies. Liz Truss and the Chancellor et al have talked a good game about supply side reform, but it is hard to imagine now that they will not wince when the political going gets tough.

This is a shame. Britain needs an unpopular government to get Britain moving, to borrow this year’s Tory conference slogan. It is a country in which too little gets built, both in terms of housing and infrastructure, problems that lie at the heart of everything from our lack of productivity to the growing fear of rising interest rates. Fiddling around with the 45p rate is one thing, but this is Britain’s real, and politically challenging, puzzle. Truss and Kwarteng now face the unenviable task of restoring credibility with their members, their MPs and markets, all of whom have different but valid reasons to doubt them. They’ve made what was already a tough road even more difficult to navigate.