In her early days as prime minister, Liz Truss has had two mantras. One is growth will sort out the UK economy; the other is a readiness to take unpopular decisions. Neither are easy to spot in her finance minister Kwasi Kwarteng’s initial policies.
As expected, Kwarteng reversed a planned hike in national insurance rates, costing around 17 billion pounds per year. He also reversed a planned hike to corporation tax, cut levies on house purchases, and surprisingly also slashed the top rate of income tax. The whole package will45 billion pounds by 2027, while the government is also spending 60 billion pounds capping household and business energy bills.
Truss and Kwarteng’s big bet is that tax cuts will unleash animal spirits. But Citi forecasts envisage the economy growing 0.9% annually on average over the next five years, far off the government’s 2.5% aspiration. Just to stabilise the debt situation, economic growth needs to grow by an extra 0.7% on top of that, the IFS reckons. The think tank is sceptical that measures like the ones unveiled on Friday will do that.
The alternative is that Truss and Kwarteng will avoid these base-angering tough decisions, the growth won’t materialise, and Britain’s debt headache will worsen. That’s the scenario markets seem to be assuming.Britain's new finance minister Kwasi Kwarteng on Sept. 23 unveiled a series of tax cuts aimed at spurring growth, while scrapping the cap on banker bonuses.
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