Winner of the 2022 Winter Essay Competition

In the 2022 Winter Essay Competition, students analysed the potential effects of Kwasi Kwarteng’s proposed mini budget.

Entrants evaluated the possible impacts on homeowners, the economy, and the UK population as a whole.  There were many excellent submissions, and Year 12 A Level student, Vlad S, emerged as our winner for his detailed and insightful essay.

Max Copley, Esports Lead, Teacher of Economics and Business 

Read Vlad’s winning essay below:

The Effect of a Mini Budget on the Economy

By Vladislav S, Economics, DLD College London,  7/10/2022

In economic terms, a minibudget is defined as an extra budget prepared by the government to cushion itself and its citizens against several economic problems that are currently facing or have been predicted to be facing. The UK government had introduced a minibudget where it announced a new set of economic policies, which were announced by the exchequer Kwasi Kwarteng on 23 September 2022. The argument made by the UK government for introducing the minibudget was to boost UK’s economic growth by initiating tax cuts, which would be later paid for by increasing the national debt of the United Kingdom. The entire minibudget, as Kwasi presented it, was estimated to be worth £ 16b and is widely believed to represent the biggest tax cuts in the history of the UK after the 1972 ” dash for growth,” which was introduced by Antony Barber. Ever since the exchequer introduced the minibudget, many questions have been asked regarding its economic benefits to the UK citizens and other important sectors of the UK’s economy, such as housing and healthcare. Most economists have argued that this budget is disastrous to the economy because it only benefits the wealthy. However, others have also argued that the min-budget is beneficial because it introduced a cut tax for the workers and more cash for the business to grow, employ and invest. In a nutshell, the economic benefit of the minibudget is that it has spurred economic growth amid soaring inflation.

The Components of the Mini-Budget

The decision to announce a minibudget by the UK’s exchequer Kwasi Kwarteng that majorly focused on tax cutting was received by mixed reactions from different quarters. This move by the exchequer is regarded as a new era in British economic history that also signalled the end and the exit of Tory’s 12-year rule. A tax cut of £45billion was the main highlight of the budget that Kwasi announced (Al Jazeera, 2022). An analysis by economic experts suggests that the move to introduce tax cuts is most likely to lead to a national debt borrowing spiral. This is because, in the minibudget, the stamp duty, income tax, and 45% income tax paid by 660,000 wealthy British have all been slashed (Peachey, 2022). This, therefore, means that the wealthy in the United Kingdom are most likely to benefit by gaining up to £ 10,000 annually. In addition to the information mentioned above, the minibudget has been designed to encourage a 2.5% annual growth. The minibudget’s changes are the income tax basic rate reduction of 19 to 20% on earnings above £ 12, 750. In addition, it has advocated for removing the 45% additional rate for rich people. This, therefore, means that the wealthy Britons will be required to pay only 40% on each pound that they earn above £ 150,000 yearly (PricewaterhouseCoopers, n.d). This move will most likely make the treasury lose over £ 2 billion annually. In the long run, this is most likely to result in a £ 45 billion debt in the 2026-27 debt in public finance. Even though the core objective of this minibudget is to encourage a 2.5% annual growth, there is no tangible plan on how the chancellor and his team plan to realize this objective.

The Overall Positive Impact of the Mini-Budget

It has been projected that several sectors of the UK economy are set to benefit from the mini-budget introduced by the exchequer. To begin with, the minibudget has been designed to support and stimulate a 2.5% growth annually. This is regarded as well economic growth because it is economic growth. Some of the economic benefits most likely to be realized by this growth rate include the following.
To begin with, it will lead to the creation of numerous employment opportunities because of a pickup in growth which has been made possible through a stimulus for the demand on the side of the economy. For example, an increase in government spending or on infrastructure by the United Kingdom government is most likely to create more job opportunities (Reuters, 2022). In essence, as the economy grows, most business firms will expand, which will attract the demand for more workers needed to fill the positions. Moreover, the abandoning of the corporate tax has contributed to the rise of the current rate from 19% to 25%, and the major beneficiaries are the private limited companies whose profits are above £ and are most likely to save a lot of profits of a sizeable amount which they can invest thus creating new employment opportunities.
Secondly, another economic benefit and impact of the budget on the United Kingdom’s economy are that it has contributed to the growth and development of business. This is because the 2.5 projected economic growth has immensely contributed to an increase in revenue and profitability, which has created numerous opportunities for the business to expand and grow in the United Kingdom (United Kingdom Government, 2022). The tax reduction as postulated in the minibudget has also contributed to the growth of new business opportunities and development because the tax cuts have significantly reduced the value of existing tax subsidies which later contributes to economic growth. In addition, the tax cuts have also boosted the demand by increasing the amount of disposable income, thus encouraging the business to grow by hiring a lot of people and investing more.
The energy package that is contained in the minibudget has been designed in a manner that it promotes the reduction in the total overall high inflation rate. A decrease in the inflation rate is most likely to spur economic growth because economics have always believed that a low inflation rate will drive economic growth. After all, it cuts spending costs. Given that the UK government has resolved to freeze the costs of energy bills to £2, 500 per household is most likely to reduce the overall inflation by 5%.

How does it affect Home Owners?

One of the most outstanding features of the United States budget was the decision to cut stamp duty. This sounded like good news to the potential home buyers and landlords who are planning to purchase more property under their names. This is partly because the government has reduced the burden of paying taxes for people buying homes. The move by the government to increase the minimum threshold, which is slightly way above the Stamp Duty Land Tax (SDLT), has to be paid upon purchasing residential properties in England and the other parts of the United Kingdom from £ 125,000 to £ 250,000. This has provided an opportunity for many people more so the first home buyers. In essence, this bold move by the government has made most people own homes. The move by the government has therefore reduced the cost of purchasing homes. It is estimated that over 250,000 new home purchasers have been attracted by this imitative by the government. In addition, it is also estimated that this noble initiative has attracted another 60000 first-time buyers to the government. The move by the government to reduce and cut stamp duty has contributed to the influx and increased demand for property in the UK.

How it affected the Society

Society has also greatly benefited from the minibudget introduced by the exchequer. In essence, the economic boost that the budget has brought. The majority of the household in the United Kingdom has benefited greatly from the budget introduced by the exchequer. To begin with, the majority of the Society benefitted from the tax cuts and exemptions. This is because the tax cuts made most families benefit a lot in terms of employment opportunities due to the reduction and the emotions from paying taxes (Johnson, 2022). Another way society benefitted was the reduction in the cost of living due to the rate of inflation, which also contributed to the reduction of the cost of living. In essence, the biggest beneficiaries of the British mini budget were the members of the Society because they benefitted from all perspectives, from being employed and enjoying ownership of land and others. In essence, the biggest beneficiaries of the British mini budget were the members of the Society because they were favoured in all aspects, from economic empowerment, employment opportunities, and inflation rate reduction and tax cuts.

The Misgivings of the Mini Budget

A lot of questions have been raised concerning the economic benefits of the budget and the impact that it has on the people. However, this budgetary plan’s misgivings or negative effects have not been comprehensively covered and discussed. It is worth noting that even though the minibudget had brought numerous benefits, a lot of negative effects were associated with it. For example, it has been widely argued that the mini budget had no meaningful impact on the economy of the United Kingdom. It has been argued that it harmed the UK’s economy more than anticipated (Aldrick, 2022). For example, economic experts have argued that the subsequent implementation of the minibudget is most likely to benefit the landlords and the other minority (Welsh Government, 2022). This is because they are the biggest beneficiaries. The customs tax exemption has benefitted the rich landlords and the wealthy who want to purchase property. Secondly, they have also argued that the tax exemptions have only benefited the rich because their earnings, which used to attract taxes, have now been exempted from taxation (Butler, 2022). Aptly put, they seem to be gaining a lot of wealth interest on their earnings instead of attracting interest. However, tax reductions and exemptions have been passed to the commoners, who must pay a certain amount to recover the spiralling debts.
In conclusion, even though, the introduction of the minibudget by the exchequer has brought with it a lot of economic advantages and importance, questions have been raised regarding the economic feasibility. The core objective of this minibudget is to encourage a 2.5% annual growth. However, there is no tangible plan on how the chancellor and his team plan to realize this objective.

References

 Al Jazeera. (2022, September 23). UK announces most significant tax cuts since 1972. Retrieved October 6, 2022, from https://www.aljazeera.com/news/2022/9/23/uk-minibudget-shakes-the-stock-market-benefits-the-wealthy

 Aldrick, P. (2022, September 26). Fallout From UK Budget Makes Families Poorer, Resolution Says. Bloomberg – Are you a robot?. Retrieved October 6, 2022, from https://www.bloomberg.com/news/articles/2022-09-26/fallout-from-uk-budget-makesfamilies-poorer-resolution-says

 Butler, C. (2022, September 29). The UK mini-budget is a stark warning to policymakers. Chatham House – International Affairs Think Tank. Retrieved October 6, 2022, from https://www.chathamhouse.org/2022/09/uk-mini-budget-stark-warning-policymakers

 Johnson, P. (2022, September 23). Mini-budget response. Institute for Fiscal Studies. Retrieved October 6, 2022, from https://ifs.org.uk/articles/mini-budget-response

 Peachey, K. (2022, September 23). Mini-budget: What it means for you and your finances. BBC News. Retrieved October 6, 2022, from https://www.bbc.co.uk/news/business-63001463

 PricewaterhouseCoopers. (n.d.). September 2022 fiscal event. PwC. Retrieved October 6, 2022, from https://www.pwc.co.uk/budget.html

 Reuters. (2022, September 29). UK’s Kwarteng: Mini budget was essential in resetting debate around growth. Retrieved October 6, 2022, from https://www.reuters.com/world/uk/ukskwarteng-mini-budget-was-essential-resetting-debate-around-growth-2022-09-29/

 United Kingdom Government. (2022, September 23). Chancellor announces new growth plan with biggest package of tax cuts in generations. GOV.UK. Retrieved October 6, 2022, from https://www.gov.uk/government/news/chancellor-announces-new-growth-planwith-biggest-package-of-tax-cuts-in-generations

 Welsh Government. (2022, October 1). Mini-budget a “huge gamble on health of economy”. GOV.WALES. Retrieved October 6, 2022, from https://gov.wales/mini-budget-a-hugegamble-on-health-of-economy?utm_source=rss-announcements&utm_medium=rssfeed&utm_campaign=announcements-Minibudget+a+%E2%80%9Chuge+gamble+on+health+of+economy%E2%80%9D