The chancellor’s mini-budget will disproportionately benefit London and the south-east, a new analysis has found, marking a sharp U-turn from the levelling up strategy of the previous government.
According to the Resolution Foundation, an independent thinktank, households in London and the south-east could gain an average of £1,600 next year from Friday’s fiscal statement. This is three times as much as those in Wales, the north-east and Yorkshire, which it predicts will gain an average of £500.
Its calculations also found that overall, Kwasi Kwarteng’s new tax and benefit policies will result in those on middle incomes losing most, with the poorest fifth of households gaining an average of £90, the middle fifth losing £780 and the top 5% of earners gaining £2,520.
The measures announced by the new chancellor on Friday included a string of tax giveaways that are expected to benefit the rich at the expense of those at the lower end of the income spectrum.
The new measures include scrapping the 45p additional tax rate on earnings above £150,000, removing the cap on bankers’ bonuses, cancelling the planned rise in corporation tax to 25% and doubling the stamp duty holiday on property purchases to £250,000.
The incomes of the richest 5% will grow by 2% in the next financial year as a result of the tax cuts, the thinktank said, while the remaining 95% of the population will get poorer as the cost of living crisis mounts.
An additional 2.3 million people will fall below the poverty line, it estimates, including 700,000 children.
Meanwhile, the Resolution Foundation said borrowing is on course to settle at 3.4% of GDP in the medium term – 0.7% higher than the average level under the Labour governments between 1997 and 2010.
The £45bn of tax cuts announced by the chancellor would need to increase GDP in the long term by 4% to be self-funding. This, the thinktank said, is implausible.
It said in order for debt to fall in the middle of the current decade without raising taxes, the government would have to make spending cuts of £35bn in 2026-27, a sum that would be on the scale of former chancellor George Osborne’s spending cuts in 2010.
Torsten Bell, the thinktank’s chief executive, accused Kwarteng of “blowing the budget” on a £45bn package of tax cuts.
“In doing so he rejected not just Treasury orthodoxy but also the legacy of Boris Johnson as a wholly new approach to economic policy was unveiled,” he said.
“Today’s Conservative party is no longer fiscally conservative or courting the red wall, with debt on course to rise in each and every year, and its focus is shifting south, where the main beneficiaries of these tax cuts live.”
In spite of the chancellor’s announcement, the cost of living crisis will result in “virtually all households getting poorer” next year, he said, amid high inflation and rising interest rates.
“But while the measures announced won’t prevent more than 2 million people falling below the poverty line, they will mean only the very richest households in Britain seeing their incomes grow,” he added.
While he said the package was likely to boost growth in the short term, it would take a “large dose of economic good fortune” – such as a dramatic fall in gas prices – to make the move fully pay off.
“Should strong growth fail to materialise, and tax rises be ruled out, then Osborne-esque spending cuts would be needed to achieve the chancellor’s fiscal rules.”
The Resolution Foundation’s findings come after the Institute for Fiscal Studies thinktank said the chancellor was “betting the house” by putting government debt on an “unsustainable rising path”.
The Treasury did not comment on the findings, instead pointing to the chancellor’s speech on Friday.