Speaking from New York where she is attending the United Nations, new UK Prime Minister Liz Truss heavily hinted there would be tax cuts coming this week, and that these were being done to grow the economy, not please people with ideological opposition to tax cuts.
Tax cuts help generate economic growth, the Prime Minister said on Tuesday, as she makes her first official trip abroad as leader to the United Nations’ General Assembly in New York. Speaking about the government’s emergency budget being presented to the Commons on Friday, PM Liz Truss strongly implied that tax cuts would be coming and while some would disapprove of them, the government did not care for their opinion on economics.
Critics of tax cuts, particularly from the left and centre of politics, claim that such a move is unfair because the people who earn most also benefit most, and from the left-wing perspective wealthy people should be punished, not rewarded by the government. The fact the Prime Minister acknowledged that the people who pay the most tax stand to gain the most from tax cuts on Tuesday has been treated as a ‘gotcha’ moment by the UK establishment press today, perhaps underlining those publications’ barely concealed prejudices.
Truss said of this: “What we know is people on higher incomes generally pay more tax so when you reduce taxes there is often a disproportionate benefit because those people are paying more taxes in the first place… What is going to deliver that economy that benefits everybody in our country. What I don’t accept is the idea that tax cuts for business don’t help people in general.”
Saying the primary focus of the government now was growing the economy to improve living standards — “growing the pie” as she put it — PM Truss said she wanted to make the UK more competitive and cutting taxes was part of that. She said, per the Daily Telegraph: “Everything we do will be focused on delivering for people because ultimately what I want to see is more jobs, higher wages and more opportunities… We are on the side of delivering a higher wage economy; that’s what we need to do.”
Challenged on whether some of her policies would be unpopular, the Prime Minister said she wasn’t chasing popularity, but growth. She said: “Not every measure will be popular, and there are always vested interests, people who oppose measures that increase economic growth… What is important to me, what is important to the Chancellor, is that people have more opportunities, there is more investment, there are jobs with higher wages. And we are prepared to make that argument. This is about growing the size of the pie.”
The reference to the ‘pie’ is a throwback to the economics of the Thatcher era, which Truss has been keen to link herself with. The argument went that while the left wishes to change the way the ‘pie’ of wealth is cut up between various groups, inevitably meaning less of the pie for the rich and more for the poor and special groups, the right instead wanted to grow the pie itself and achieve more real wealth for everyone without resorting to redistribution.
The message will likely be welcome news to taxpayers who are now working under the highest tax burden in the United Kingdom since the post-war era. Truss said: “Lower taxes lead to economic growth; there is no doubt in my mind about that… having the highest taxes in 70 years and putting up corporation tax at a time when we’re trying to attract investment to this country isn’t going to deliver growth. We need to be competitive.”
Yet there are clearly unexplained elements of Truss’s plan that her detractors look upon with concern. If Truss is to govern as promised, she will be simultaneously be cutting taxes and considerably increasing government spending, with huge energy price discounts to be funded with borrowing. Truss claims cutting taxes will pay for themselves, but this will only truly matter if economic growth outpaces interest rates on government borrowing, which it presently does not, risking a debt spiral.
All of this comes with an inherited government deficit built by the former Labour government and not meaningfully tackled during the ‘good years’ under Conservative rule, then grown again with out-of-control Coronavirus spending. The British state has already swollen to a basically unprecedented size, and while Truss has talked big on cutting taxes, there’s been less discussion of shrinking the state to put the government debt-to-GDP ratio on a permanently sustainable footing.
There is, ultimately, a shopping list of taxes the government could review if it wanted to relieve some pressure on the so often forgotten ‘squeezed middle’ in a discourse that generally only considers either the insanely wealthy or absolutely destitute. Fiscal drag — that is to say, tax bands which don’t change while inflation drags more and more medium-income people into high earners’ brackets, further eroding their spending power — is becoming a real issue to the broad middle class as inflation heats up.
Families also suffer at the hands of a wildly unfair tax system which punishes traditional households with one earner and one home keeper, but gives preference to two-working parents and ‘latchkey kids’. Rectifying this would be very straightforward with an option for household rather than personal taxation, but the government orthodoxy for decades has been that economic growth is maximised when parents don’t look after their children, but rather both go out to work and pay for daycare instead.
There is no indication whatsoever that Truss has an interest in improving the conditions of families, scotching hope again this deeply unfair system will be reformed. Truss rival for the leadership Kemi Badenoch signalled her interest in helping to strengthen families through government and tax policies, but she has been shuffled to International Trade by the new Truss administration so it is doubtful how much her voice will be heard in this area.
These are to say nothing of the UK’s system of ‘sin’ or ‘green’ taxes, which aim to discourage consumption by considerably increasing the price of certain goods. Included among them are a pump tax on petroleum and diesel — which varies depending on the wholesale price of fuel but is typically a whopping 50 per cent — and on electricity. Again this varies depending on wholesale cost and other factors, but as recently as 2021 “environmental and social obligation” costs — what most people understand to be green levies — accounted for 25 per cent of the average electricity bill.
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