British people are the guinea pigs in another risky experiment at the hands of the Tory party

Kwarteng’s surprise decision to abolish the top 45p rate of income tax paid on earnings over £150,000, is a huge risk politically, writes Andrew Grice

The chancellor’s £45bn of tax cuts went further than expected (PA)

Kwasi Kwarteng declared that “we are at the beginning of a new era” in a dramatic mini-Budget that for once lived up to the billing by government aides who promised “shock and awe”.

The chancellor’s £45bn of tax cuts went further than expected, the biggest such package since 1972 and larger than Nigel Lawson’s in 1988. The 1972 experiment under Tory chancellor Anthony Barber failed, inflation rocketed and he made a humiliating retreat. Now, the British people are the guinea pigs in another risky experiment.

Kwarteng’s surprise decision to abolish the top 45p rate of income tax paid on earnings over £150,000, is a huge risk politically. Notably in the red wall, where voters are unlikely to welcome a £10,000 a year tax cut for someone on £300,000 a year. So is his decision to scrap the cap on bankers’ bonuses and his refusal to cover part of his necessary £60bn energy bills package over the next six months with a windfall tax on the excess profits of oil and gas producers.

However, a reduction on stamp duty – and speeding up a 1p cut in the 20p rate of income tax from 2024 to 2023 – will be more popular with the public. Kwarteng confirmed the scrapping of the national insurance contributions increase and the proposed rise in corporation tax next April.

This long list and kitchen sink approach felt like the first Budget after a general election when one party has replaced another. And that was the point. Liz Truss is utterly determined to rip up much of what her own party – with her at the cabinet table for most of the time – has done since taking power in 2010.

When the chancellor attacked a “vicious cycle of stagnation”, he was trashing his own party’s record without saying so. “New” is a powerful word in politics. After all, New Labour was the most successful piece of political marketing in modern times. Truss is hoping that her “go for broke, go for growth” strategy will make her government look new – and, crucially, ensure the Tories do not look tired and running out of steam and ideas.

The radical change of direction poses a dilemma for Labour. It hoped the voters were finally tiring of the Tories. Labour didn’t accuse them of “12 wasted years” when Boris Johnson was prime minister because the public viewed him as different, not a typical Tory.

Since Johnson’s departure, Labour has begun to play the “12 years” card and Rachel Reeves, the shadow chancellor, told the Commons the package was “an admission of 12 years of economic failure”. But what if the voters judge the Truss government is “new” and give it the benefit of the doubt? Might she defy the odds and repeat Johnson’s trick?

However, today’s package is a huge gamble, even in the eyes of Tory MPs. Many are queasy about the £72bn of extra borrowing in the current financial year. Kwarteng promised a return to fiscal responsibility in the medium term but he has shredded Rishi Sunak’s fiscal targets and the traditional balance-the-books approach on which the Tories were elected in 2019.

Some Tories fear the Treasury and the Bank of England are pulling in different directions on fiscal and monetary policy respectively. Kwarteng played down differences with the Bank but the financial markets may not be convinced.

Indeed, Tory critics of Truss suspect the markets, rather than her party or the public, will be the ones who “kill off this experiment”, as one MP told me. While some Tory opponents will give Truss a chance to see if the new approach works, she has much less credit in the backbench bank than Johnson had after getting Brexit over the line and winning a general election.

Some describe the Tory mood as “sulphurous” after a bruising leadership election and Truss’s decision to exclude Sunak supporters from senior ministerial posts. While Tory MPs will not vote against tax cuts, there could be a conflict between Truss and her MPs over Kwarteng’s plans to allow more housebuilding. That must be part of any credible growth strategy but nimbyism in Tory heartlands forced Johnson to back down on the issue. It will now test Truss’s mettle.

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Her allies insist she is prepared to tread where others feared to, including Johnson. One way of viewing her government and Kwarteng’s mini-Budget is as the last throw of the dice by the hardline Brexiteers who complained that Johnson backed away from the politically difficult decisions needed to “exploit the opportunities of Brexit”. Like bankers’ bonuses.

If the experiment fails, the Eurosceptics will have run out of excuses, and perhaps the country – and even the Labour Party – can finally have a proper debate about whether Brexit is worth it.

Some things haven’t changed since the Johnson era. He would have been proud at the lack of scrutiny and transparency of a “fiscal event” that is much more significant and consequential than most Budgets but was denied that status so the chancellor could avoid a verdict on his plans by the Office for Budget Responsibility fiscal watchdog.

It’s shifty, to put it mildly. Fortunately, the government cannot muzzle think tanks such as the Institute for Fiscal Studies, which warns that the public finances are on an unsustainable footing. The biggest threat to Truss and Kwarteng is that the financial markets agree. As a former cabinet minister put it: “Kwasi is an engaging and clever guy. But he might prove to be a loose cannon in this job.”

We will soon find out.