Liz Truss pursues ‘trickle-down economics’ despite scorn from Biden

on Sep23
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British Prime Minister Liz Truss and U.S. President Joe Biden formally met for the first time at the United Nations General Assembly in New York City, following clashes in economic policy between the two leaders.

Wpa Pool | Getty Images

LONDON — The British government is set to announce sweeping tax cuts for businesses and the wealthy Friday, in a controversial mini-budget showcasing the lengths to which new Prime Minister Liz Truss is willing to go to overhaul U.K. economic policy even as it draws political ire.

Truss — whose “Trussonomics” policy stance has been likened to that of her political idols Ronald Reagan and Margaret Thatcher — has said she is willing to slash taxes at the top end of the economic spectrum in a bid to boost U.K. growth, in a strategy typically dubbed “trickle-down” economics.

But the approach, which comes as Britain faces its worst cost-of-living crisis in decades, has attracted criticism from both U.K. political opponents and Downing Street’s hereto closest international ally — the U.S. president.

Biden, in a tweet Tuesday, said he was “sick and tired of trickle-down economics,” adding “it has never worked.”

Downing Street said it was “ludicrous” to suggest the comment was aimed at Truss, according to the FT. The White House did not immediately respond to CNBC’s request for comment.

It came a day before the pair formally met for the first time in New York Wednesday, after which Truss tweeted that “the U.K. and U.S. are steadfast allies.”

What is expected in the mini-budget?

The U.K.’s growth-focused, mini-budget, which will be announced Friday by the U.K.’s new Finance Minister Kwasi Kwarteng, is expected to include plans to scrap planned corporation tax hikes, an end to the cap on bankers bonuses and a potential cut to stamp duty, the tax paid on house purchases.

Kwarteng also confirmed ahead of time Thursday that the government will reverse a recent hike in the taxes employees pay on earnings, known as National Insurance.

I don’t accept this argument that cutting taxes is somehow unfair.

Liz Truss

U.K. prime minister

Critics, including Britain’s opposition Labour party, have argued that such measures disproportionately benefit the wealthy. Higher earners will receive greater relative savings from the tiered NI levy than lower earners, for instance, while pensioners and those on benefits will be exempt from the savings.

Still, Truss said Tuesday she was willing to be unpopular if needed to kick-start the U.K. economy.

“I don’t accept this argument that cutting taxes is somehow unfair,” she told Sky News.

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“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,” she added.

More detail is also expected on a previously announced cap on energy bills for households and businesses, which have been pushed higher following Russia’s war in Ukraine.

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“With everything said and done, we estimate that the government’s spending package may well exceed £200 billion over the next two years, laying waste to the existing plans for fiscal consolidation,” he told CNBC via email.

Ryan noted that the government’s fiscal measures could “significantly lessen the possibility of a deep and prolonged UK recession,” but added that risks remain in terms of elevated inflation over the medium term and increases to the U.K.’s public deficit and net debt levels.

The Bank of England said Thursday that is was possible that the U.K. was already in a recession.

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