On Friday, the Chancellor, Kwasi Kwarteng, will outline a mini-Budget to deliver promises made by Ms Truss during her Tory leadership campaign to cut taxes. The mini-Budget is expected to reverse a 1.25% rise in National Insurance and scrap a 6% increase in corporation tax at a cost of £30bn. A cut in the basic rate of income tax may, it’s reported, be on the cards.
The announcement comes at a crucial time. Living standards are dropping at their fastest rate in decades and a recession may be imminent. And on average, we have been underperforming against major economies over the past 15 years, while income inequality has widened.
Ms Truss’s pitch echoes the small state mantra of those on the right of her party: “Cut taxes to reward hard work and boost business-led growth and investment.” The theory is that by allowing businesses and workers to retain more cash, they should spend and invest more which, in turn, should bring in more tax revenue. Cut red tape, and they have the freedom and incentive to do even more - what’s termed supply-side reforms.
Cutting taxes marks a definitive break from the Conservative’s austerity era. But many economists query if that will substantially revive growth. Analysts at Oxford Economics, using a model that mimics that of the Treasury, say that they would add just 0.1% to the level of output of GDP by 2025. History says tax cuts rarely pay for themselves. They could, however, risk inflation - and so perhaps interest rates - staying higher for longer. Moreover, the Institute for Fiscal Studies calculates that those on the highest incomes will receive more than 200 times as much from these tax cuts as those on the lowest.
What most economists do agree on is that underinvestment has been holding the UK back, making us a less efficient nation and restraining wage growth. However, many say lowering taxes and red tape may not be a silver bullet.
Ms Truss’s stance reflects a belief of allowing markets to work freely. But ironically, it’s the free workings of energy markets that’s already prompted a change of plans as soon as she took office, a support package that signifies state intervention on what could be an unprecedented scale.
The package also risks adding even more to the government’s debt than the furlough scheme. As it is, higher inflation already risks the interest payments on that debt exceeding £100bn next year. Concerns about even higher debt has prompted the interest rate the government pays for new borrowing to hit a decade-high on financial markets.
Ms Truss may yet face pressure to pump more money into the state. Schools and hospitals aren’t immune to recent inflation. They’ll need billions of pounds more simply to fulfil existing plans.
Ms Truss’s strategy is indeed different but will it pay off? The value of the pound has recently fallen to its lowest level against the dollar in almost four decades. Markets, already nervous about the UK’s prospects, reckon her approach is a gamble. Friday’s tax cuts will boost many fortunes in the short run - but we won’t know for some time if our longer-term prospects have improved.
The devil is in the detail … and that may be exposed on Friday …
Well she can’t cut my income tax because I haven’t paid any for
many years. I’m well below the threshold.
So the rich are to get richer and the poor, poorer. What’s new?!
In a speech to the United Nations on Wednesday, the prime minister will argue the free world must prioritise economic growth to deny authoritarian states like Russia the chance to manipulate the global economy.
In her latest break from Treasury orthodoxy, Truss vowed on Tuesday to review all tax rates to help struggling households and businesses through the cost of living crisis. The prime minister’s remarks pave the way for a radical overhaul of the system that could include looking again at income tax brackets and come amid reports she is planning a cut to stamp duty as part of her emergency mini-budget on Friday.
In an interview at the top of the Empire State Building on Tuesday, she told the BBC: “We do have to take difficult decisions to get our economy right. We have to look at our tax rates. So corporation tax needs to be competitive with other countries so that we can attract that investment.”
She had already signalled that further tax cuts, beyond the changes expected on Friday, could be on the cards. She told reporters on the plane to the US: “Lower taxes lead to economic growth, there is no doubt in my mind about that.”
The Times reported that Truss believes that cutting stamp duty – which raises about £12bn a year for the Treasury – would aid growth by encouraging more people to move.
BIB If there’s a logic there then I can’t see it …
There’s no doubt, though, that her “vision” of enriching the rich at the expense of the poor will appeal to filthy-rich world leaders - the robber-barons will become small-state pharaohs …
I’m Not really sure that stamp duty deters people from buying nor selling a house. Interest rates, salaries, savings, job security and running costs and hence possible surplus to actually live on are what people tend to take into account when deciding if they can afford to buy an available property.
CGT and Inheritance tax will also have a bearing on how much a beneficiary of an estate can add to their purchasing power. Having had to pay both in relation to my parent’s house (the CGT came largely after running the house as an HMO for a few years), I can categorically state that the amount we handed over to HMRC was sufficient to have gifted our children enough for a sizeable deposit on a smallish property each, or for us to have bought another rental property outright. Both of these outcomes would have led to taxes being paid ad infinitum. I hope that the lump sum money HMRC collected was spent wisely.
Laughable Laffer curve. This hypothetical / academic view of how tax cuts might grow the economy (even if initially it reduces tax income for the government) was the basis of Reagan’s tax cutting policies. As Biden says:
“I am sick and tired of trickle-down economics. It has never worked. We’re building an economy from the bottom up and middle out.”
Simplistic tax cuts don’t work as Truss claims. For these to act in a way that grows the economy it requires that the vast majority see a real & meaningful increase in spending power. Disposable income goes up, spending goes up, economy grows. But her cuts can only benefit a few - the top 5-10% of earners. Who already have high disposable income. Everyone else sees marginal increase or none at all. And that is swallowed up by inflation and hikes in energy costs. So no increase in spending and no growth in the economy.
Just lower tax receipts. Meaning cuts. Truss is truly stupid and terrible.
Eg. I could raise, say, £2k via credit card balance transfers (to buy something now) which I’d pay around £60 in fees for, and which I could pay off at my leisure for 0% further interest over 2 years.
Meanwhile, the item I want to buy has gone up by £100 if I decided to save instead.
@Dextrous63 “meanwhile the thing l want to buy has gone by £100”
But if the interest on your savings was set at a reasonable amount then
maybe you would be in front ??l remember when saving for my first house
it was impossible to keep up with the price inflation at that time, so l
borrowed the deposit !
Once l was on the property ladder it became easier to upscale !!
The present interest rates on savings don’t allow this, so poor people are
trapped forever at the lower end of society ?
I’ve never looked to the government to make a difference if we needed more money we went out and got second and third jobs. It’s only since we both wore our bodies out doing it so we can’t do it any more its hitting us we can’t help ourselves much longer. I’m not sure tinkering with tax will help those who really need help. Especially those even worse off than we are.
So Liz Truss has been addressing executives at a business roundtable in New York. In an opening speech which stated her determination to cut taxes, she claimed that promoting the City was “a key part of the levelling up agenda”. In her speech Truss argued that boosting the City – and, by implication, allowing bankers to get richer – would actually contribute to levelling up. Really? Explain that Liz.
She explained: “We want the City to be the most competitive place for financial services in the world, and we see that as a key part of the levelling up agenda, because when we unblock capital, that capital will be used across the UK to make every industry become more productive and competitive.”
By competitive she means lowest tax. Just to explain. And by ‘unblock capital’ she means sloshing around unregulated money. And by ‘across the UK’ she means London. Thought I’d help with the translation from word-garbage to the clarity of her patronising lies.
