The plans cost the Truss administration billions in both expenditure and lostrevenue: £45 billion from the tax cuts, for example, and £60 billion for aprice cap on energy costs. But the new prime minister is convinced that themoney can be earned back if the economy picks up.
Economic recovery was the most important file waiting for Truss when shesucceeded fellow party member Johnson at the beginning of this month. Costs ofliving and energy have soared, inflation shoots past 10 percent. In varioussectors, the British expressed their dissatisfaction through strikes.
Trickle-down Economy
With some delay due to the mourning period for Queen Elizabeth, the cabinetnow announces what it wants to do. It is striking that the choice has beenmade to help higher income groups in particular: the highest tax bracket of 45percent for incomes above 150,000 pounds will disappear, a bonus ceiling forbankers will be scrapped and the rich in particular will have more money leftover now that an increase in social charges is not going ahead. This groupbenefits even the most from the stop on energy costs.
Truss is fully committed to this trickle-down economy, the idea that if therich have more money, everyone benefits through their spending. For example,the cabinet argues that by removing the transfer tax for homes under £250,000,homeowners will spend more on a coat of paint or a new kitchen.
“There are too many obstacles for companies,” said Minister Kwarteng at thepresentation of his ‘mini-budget’ in the House of Commons. “We need a newapproach, focused on growth.”
UK correspondent Arjen van der Horst:
“Truss’ predecessor Boris Johnson was difficult to pigeonhole economically. Hewas in favor of tax cuts and deregulation, but also increased spending andleveling out by putting more money into the impoverished central and north ofEngland ( leveling up ).
At Truss, the economic course is crystal clear: these are all measures thatmainly benefit the very rich. But Truss has indicated that she has no problemwith that. Truss believes that her predecessors focused too much on wealthdistribution; she would rather grow the economy as a whole.”
Labor is disgraceful that the money mainly flows to the rich in society. Thattheir money would seep through to the rest of society, economy spokesmanReeves called an outdated idea. “The Prime Minister and Treasury Secretary aretwo desperate gamblers who continue to play a losing hand.”
Remarkably, there was also criticism from Truss’s own party that thegovernment has not calculated the plans to see what the effect will be on theeconomy. According to Truss, there was no time for that, but MP Mel Stride,chairman of the Treasury Committee, believes that in times of mistrust thereshould be more openness.
“If markets are nervous about government bonds and our currency is underpressure, it’s time for more transparency. It must be made clear that the taxcuts or other measures are fiscally justified.”
UK correspondent Arjen van der Horst:
“Prime Minister Truss has often portrayed herself as the next Thatcher, evenin the way she dressed. One aspect of her policies is not so Thatcherian: hermeasures create a huge hole in the budget in times of high inflation. Thatcherwas a fiscal conservative who prioritized lowering inflation and reducing thebudget deficit before cutting taxes.”
Critics warn that the bill for this package could fall on future generations.It is still unclear exactly how high this will be: Kwarteng gave few detailsabout how the cabinet wants to finance everything.
“Never before has a government borrowed so much and explained so little,”Reeves said of the plans. “What does the minister have to hide?”
The financial markets also reacted hesitantly. The British pound fell furtheragainst the dollar, to its lowest point in 37 years. The value of short-termgovernment bonds is “sinking like a brick,” Reuters news agency reported, withprobably the largest single-day loss in value since 2009.