Liz Truss said cutting taxes for wealthy and profitable businesses is not “unfair”, signaling a dramatic shift in economic policy ahead of a growth-focused mini-budget on Friday.
Britain’s prime minister has approved plans to cut National Insurance, a policy that will disproportionately help the wealthy, reverse a planned rise in corporation tax and lift the cap on bankers’ bonuses.
While recent Tory chancellors have focused on the “distributive effects” of tax changes between different income groups, Truss argues that reducing the tax burden on the wealthy and businesses will spur growth.
The Prime Minister’s politics revealed a stark difference between her and US President Joe Biden, whom she will meet in New York on Wednesday.
“I’m sick of the economic fallout,” Biden tweeted on Tuesday. “It never worked. We are building an economy from the bottom up and from the middle out.
Downing Street said it was “ridiculous” to suggest Biden’s comments were aimed at Truss, arguing that the UK and the US face different economic challenges.
When asked if Truss was pursuing “trickle down” economics, her spokesperson said he hadn’t discussed economic theory with her.
Kwasi Kwarteng, Chancellor of Truss, will present a series of supply-side reforms on Friday to boost growth. The new Truss administration sees tax cuts as an important part of that ambition.
“I don’t buy this argument that cutting taxes is somehow unfair,” she told Sky News in New York.
“What we do know is that higher income people generally pay more tax, so when you lower taxes there’s often a disproportionate benefit because those people pay more tax in the first place.”
When asked if she was ready to be unpopular, Truss replied, “Yes, I am.” She also pointed out that the government had announced a massive state intervention to contain energy bills which would help everyone.
New local ‘investment zones’ will be given the green light in the Kwarteng mini-budget as part of a major overhaul of the government’s leveling program – along with wider national tax breaks designed to further boost businesses. business investments.
The government has written to some forty municipalities inviting them to submit proposals for investment zones which would benefit from a lighter planning regime and various tax breaks.
The areas will also have fewer environmental restrictions, which could provoke a backlash from local communities, particularly over concerns about green spaces.
Kwarteng has also considered expanding the research and development tax credit system while improving the business investment program to attract more money to start-ups.
The chancellor is also set in Friday’s mini budget to introduce a reduction in stamp duty to encourage more property transactions. This decision will echo a partial lifting of the levy for more than a year during the Covid-19 pandemic.
Truss said during the Tory leadership race in August that she wanted new low-tax, lightly regulated investment zones to spur economic growth – inspired by the “Enterprise Zones” of Margaret Thatcher in the 1980s, from the Isle of Dogs to Corby.
The new zones will dwarf the existing scheme of up to 11 ‘free ports’ originally proposed by Boris Johnson, his predecessor, which involves tax breaks, customs benefits and looser planning restrictions.
Ministers will announce the Enterprise Zones as a break from the priorities of Michael Gove, the former leveling secretary. Gove has mainly focused on stimulating investment in so-called ‘left behind areas’.
“The plans make Gove look like a socialist,” a government insider said.
The Leveling Up Service has written to councils and city authorities inviting them to take part in the scheme with a Wednesday deadline.
The letter describes the package as a “substantial” opportunity that goes beyond the existing freeport model.
Peter Holmes, a fellow at Britain’s Trade Policy Observatory, was skeptical. “Studies of Enterprise Zones have shown that they have generated fewer jobs than expected and a very high proportion of them have been relocated from elsewhere, so it is difficult to see how [investment zones] would increase total investment in the UK as a whole,” he said.
Paul Swinney, director of policy and research at the Center for Cities think tank, said deregulation in a former corporate area in Birmingham city center had been “less important” than making it a “place more attractive to do business” through capital investment and remodeling.
“What’s the detail there?” Is there money behind it? he said of the last zones. “Of course, deregulation alone will not be enough.”
Senior local authority officials in the north were skeptical. “I think they realize they need something a lot more dramatic than enterprise zones,” one said. ‘The question is whether they can get it through Whitehall without legislation and without a warrant via a general election manifesto.’