Tory donors and business leaders have hailed Kwasi Kwarteg's plans for £45bn of tax cuts as the “first Conservative” budget for over 20 years amid hopes of a revival in economic growth.
Executives and economists urged Liz Truss’s new government to go further after the Chancellor was praised for cancelling the corporation tax increase and outlining investment incentives in a mini-Budget that executives described as “very pro-business”.
Peter Hargreaves, a Conservative donor and the billionaire co-founder of broker Hargreaves Lansdown, said that cuts to national insurance and income tax will boost the economy but raised concerns about the health of the public finances.
He said: “It's the first Conservative government we’ve had that looks like a Conservative government since John Major. But they’ve only got it half right.
“The incentives are fantastic. I think it's good for the economy: low taxes, low corporation tax, lower taxes on employing people is important as well. But you can't carry on spending, spending, spending, and that's why the pound is coming under so much pressure because at some stage the Government won’t be able to borrow anymore.”
Mr Kwarteng is expected to meet leading City figures on Thursday as he seeks to sell the tax cuts to businesses and push ahead with a package of financial services reform dubbed “Big Bang 2.0”.
Tim Martin, founder of pub chain JD Wetherspoon and a Tory donor, said the Chancellor has been “very pro-business” in the mini-Budget but called on him to go further.
He said: “The alcohol duty freeze is welcome, but the real problem for pubs is that they pay far higher business rates per pint than supermarkets and, in addition, pubs pay 20pc VAT on food sales, whereas supermarkets pay nothing.”
The package of tax cuts marks a departure in fiscal policy from the previous Tory government as Ms Truss seeks to lift Britain’s anaemic growth rate.
Mr Kwarteng and the Prime Minister have set an objective of boosting the trend rate of economic growth to 2.5pc per year later this decade, which would mark a sharp acceleration from the miserable years of underperformance since the financial crisis.
The fiscal statement has had a mixed response, with economists hailing the potential of the tax cuts to boost growth – or at least, remove the threat of a slowdown that would have been caused by proposed tax increases under Rishi Sunak and Boris Johnson – but fearing the rise in the budget deficit, and looking for more reforms to the way the economy works.
Tony Danker, head of the Confederation of British Industry, praised the tax cuts but said ministers must go further to resurrect the UK’s long-term growth prospects.
He told BBC Radio 4’s Today Programme: “Once you borrow £150bn extra, you can no longer tolerate zero, anaemic growth Britain.
“Action on tax is necessary but not sufficient. I don’t think it will all of a sudden transform 1pc growth, which we have had for the past 15 years, to 2.5pc.”
Mr Danker also welcomed proposals to reform the planning system and boost infrastructure investment, saying this could have a bigger impact on longer-term growth.
Such reforms have proved difficult in the past. Under Boris Johnson, the Conservatives abandoned a highly anticipated set of changes to the planning system following a Liberal Democrat victory in the 2021 Chesham and Amersham by-election.
Kersten Muller, of consultant Alvarez & Marsal, said that following through on planning reform will be key if the stamp duty cut is to help boost the economy rather than simply pushing up house prices.
He said: “The overhaul of the planning laws to encourage infrastructure and housebuilding is encouraging, however previous reforms show that changes to the planning system can lead to a period of paralysis.”
Martin Beck, chief economic adviser to the EY Item Club, said the more upbeat, can-do attitude from the Government combined with tax cuts is a good sign for the future.
He said: “It is going to lower tax rates which will incentivise some economic activity and it is an attempt to create a feel-good factor and dispense with the balanced budget attitude of the past decade which has no positive message and would not inspire businesses.
“The message and the measures might combine to create something positive.”