Following a conflict in economic policy between the two leaders, British Prime Minister Liz Truss and US President Joe Biden formally met for the first time at the United Nations General Assembly in New York City.
WPA Pool | Getty Images
LONDON – The British government is set to announce sweeping tax cuts for businesses and the wealthy on Friday in a controversial mini-budget, with new Prime Minister Liz Truss set to overhaul Britain’s economic policy, even as the That it also attracts political anger. ,
Truss – whose “trussonomics” policy stance has been compared to that of his political idols Ronald Reagan and Margaret Thatcher – has said that he wants to reduce taxes at the top end of the economic spectrum in a strategy to boost UK growth. are ready for Commonly called “trickle-down” economics.
But the approach, which sees Britain facing its worst life crisis in decades, has attracted criticism from both the UK’s political opponents and Downing Street’s closest international ally – the US president.
Biden said in a tweet on Tuesday that he was “sick and tired of the economy,” adding that “it never worked out.”
Downing Street said it was “ridiculous” to suggest the remarks were aimed at the truce, according to the FT. The White House did not immediately respond to CNBC’s request for comment.
The pair were in New York a day before they met for the first time on Wednesday, after which Truss tweeted That “the UK and the US are firm allies.”
The UK’s growth-focused, mini-budget, which will be announced on Friday by the UK’s new Finance Minister Quasi Quarteng, includes plans to end the planned corporation tax hike, eliminate bankers’ bonus limits and a possible cut in stamps. is expected to be. Fee, tax to be paid on the purchase of a house.
Quarteng confirmed ahead of time Thursday that the government would reverse a recent hike in pay on employees’ income, known as national insurance.
Critics, including Britain’s opposition Labor Party, have argued that such measures disproportionately benefit the wealthy. For example, higher earners will receive higher relative savings from the Tier NI levy than lower earners, while pensioners and benefit recipients will be exempt from savings.
Still, Truss said on Tuesday he was willing to be unpopular if necessary to kick-start Britain’s economy.
“I do not accept the argument that the cut in taxes is unfair in any way,” she said. sky News.
“What we do know is that people with higher incomes generally pay more taxes, so when you reduce taxes there is often a disproportionate benefit because those people are paying more tax in the first place. ,” He said.
More details are also expected a Previously announced limit on energy billFor homes and businesses, which have been pushed higher after Russia’s war in Ukraine.
On Thursday, the central bank implemented it seventh consecutive rate hike, its base rate has been increased by 0.5% to 2.25%. Sterling rose marginally after the announcement, but remains at a decades-low Dollar,
Analysts have said the announcement will mark a “Critical Moment” As for the direction of the UK economy, both the government and the central bank, which operate independently, are pulling in opposite directions.
“The bank is looking to reduce consumer demand, and the government, to spur growth, may now pull in opposite directions,” David Bharrier, head of research at the British Chambers of Commerce’s business group, said in a note on Thursday.
Questions have also been raised over how the policies will be funded, with tax cuts expected to lead to higher borrowings. Truss has argued that the resulting growth will bring in more revenue that will cover those borrowing costs.
Niall O’Sullivan, EMEA’s chief investment officer at Neuberger, said: “The need to increase future lending comes with tighter measures being taken by the central bank – this has the potential to continue to increase in future borrowing costs.” Burman said.
Matthew Ryan, head of market strategy at global financial services firm Abury, put those borrowing costs at an estimated £200 billion ($225 billion).
“With all said and done, we estimate the government’s spending package could exceed £200 billion over the next two years, ruining existing plans for fiscal consolidation,” he told CNBC via email. told.
Ryan said the government’s fiscal measures “could significantly reduce the likelihood of a deep and prolonged UK recession,” but added that risks remain in the context of high inflation in the medium term and the UK’s public deficit and net Debt levels rise.
The Bank of England said on Thursday It was possible that Britain was already in recession.