Kwasi Kwarteng, a Cambridge-trained economic historian, has been Chancellor of the Exchequer, the equivalent of the Treasury Secretary in the United States, for less than a month. And it’s been an eventful month. He announced, in the “mini-budget” of last week, major tax cuts, including the abolition of the top marginal income tax rate, which are expected to reduce government revenues by important proportions. The result is that government debt appears to have been set on a new expansion course that is more unsustainable than the last one, and markets have responded with a rapid drop in the value of the pound sterling.
Pundits, politicians, and commentators have been up in arms over the mini-budget, arguing that Kwarteng must either reverse course or enact massive spending cuts (some pundits call them “savage”). The choice is presented as if it were a form of Hobson’s choice, with the reversal being the clearly preferable option. However, it’s not clear why spending cuts would be impossible.
Consider the numbers advanced by pundits regarding the necessary spending cuts. One oft-cited estimate placed the required cuts at between £37 billion and £47 billion, the highest of all the estimates I have seen. So, let’s take the upper bound of that estimate (£47 billion) and ask what share of total government spending it represents.
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