Kwasi Kwarteng: Labour ‘at risk’ without more tax rises amid bond jitters
The government risks being plunged into crisis unless it prepares for another bruising round of tax hikes to cover sharp rises in energy subsidies, former chancellor Kwasi Kwarteng has warned.
In an interview with Morning Wire, Kwarteng said taxes could be put up as soon as November if the government pushes ahead with proposals for energy subsidies amid soaring oil and gas prices triggered by the war in Iran.
He compared Monday’s market turbulence, which saw oil surge past $100 a barrel and government bond yields rocket, to a similar energy shock in 2022 following the Russian invasion of Ukraine.
That was followed by Kwarteng’s so-called ‘mini-budget’, a package of measures including billions in energy subsidies and with unfunded tax cuts which spooked bond markets and led to the defenestration of the Liz Truss government.
‘The cry for more subsidies’
“I think the spike then in terms of gas prices was much greater than today but there’ll be similar pressures for the government in terms of helping people with bills and of course any help will have to be scored by the OBR and could end up leading to tax rises in November,” Kwarteng told Morning Wire.
“The cry will always be for more subsidies – I think officials in the Treasury will push back because you’ve got to remember, any subsidy that you come up with, you’ll have to pay in higher taxation towards the end of the year.
“I’ve been here before. I think the markets will be looking very closely at any energy intervention and they’ll be expecting the government to pay for it through tax rises and if it doesn’t then they could be at risk, as we were in 2022.”
Government borrowing costs have rocketed over the past week amid investor concerns that spiralling energy prices could precipitate a surge in inflation, in an echo of the 2022 mini-budget crisis.
The 10-year gilt yield jumped by as much as 14 basis points on Monday morning, reaching its highest in months.
Rachel Reeves Keir Starmer have indicated they are ready to step in to help households with higher energy bills, in an energy bailout that could run into the billions if prices continue to rise.
Kwarteng joins forces with Nigel Farage in Bitcoin investment
The warnings come as Kwarteng unveiled Nigel Farage as a major new investor in his Aquis-listed crypto business Stack BTC.
The Reform UK leader has spent £215,000 to acquire a 6.3 per cent stake in the small-cap company which says it is “focused on building a portfolio of high-quality, cash-generative businesses alongside a Bitcoin treasury,” according to a stock market filing published on Monday.
Kwarteng, who joined the firm’s board in November, has since become executive chairman of the business and controls a 5.4 per cent stake worth £185,000 together with his wife Harriet.
News of the investment triggered a more than doubling in Stack’s share price to 12.5p, meaning that the company’s shares are now trading well above the value of its crypto holdings.
Kwarteng defended the investment decision by Farage, who has adopted a more crypto-friendly stance following a similar shift in position from US president Donald Trump.
“Politicians are under massive scrutiny which is quite right, Kwarteng said.
“Twenty or thirty years ago people used to invest all the time, they were just seen as individuals who just happened to be MPs.
“I get the scrutiny but I think just because it’s unusual it doesn’t mean it’s in any way wrong or bad.”
Kwarteng called upon financial regulators like the Financial Conduct Authority to “try and engage with” crypto companies to support the industry to thrive in the UK.
“I think this is a new financial technology that will take a bigger and bigger role in global financial architecture, and we can either get on the train and get ahead of developments or we can be laggards, but this isn’t going away,” he said.