Liz Truss has declared that tax cuts are not “unfair” for wealthy and profitable companies, signaling a radical shift in economic policy ahead of a pro-growth mini-budget on Friday.
Britain’s Prime Minister has approved plans to cut Social Security, a policy that will disproportionately help the better off, reverse a proposed corporate tax hike and remove a cap on bankers’ bonuses.
While recent Conservative chancellors have focused on the “distributional effects” of tax changes across income groups, Truss argues that cutting the tax burden on the wealthy and corporations will boost growth.
The Prime Minister’s policies revealed a stark difference between her and US President Joe Biden, who she is due to meet in New York on Wednesday.
“I’m sick of the trickle-down economy,” Biden tweeted Tuesday. “It has never worked before. We are building a bottom-up, middle-out economy.”
Downing Street said it was “ridiculous” to claim Biden’s comments were anti-Truss, arguing that the UK and US face different economic challenges.
When asked if Truss pursued “trickle-down” economics, her rep said he didn’t discuss economic theory with her.
Kwasi Kwarteng, Chancellor of Truss, is set to unveil a range of supply-side reforms on Friday to boost growth. The new Truss administration believes tax cuts are an important part of that ambition.
“I don’t accept that argument that tax cuts are somehow unfair,” she told Sky News in New York.
“What we do know is that people with higher incomes generally pay more in taxes. So when you lower taxes, there is often a disproportionate benefit because these people pay more taxes in the first place.”
When asked if she’s willing to be unpopular, Truss said, “Yes, I am.” She also pointed out that the government has announced massive government intervention to keep energy costs down, which is helping everyone would.
New local “investment zones” will be approved in Kwarteng’s mini-budget as part of a major overhaul of the government’s alignment agenda — along with broader national tax breaks designed to spur more business investment.
The government has written to about 40 councils, asking them to submit proposals for investment zones that would benefit from a lighter planning system and various tax breaks.
The zones will also be subject to fewer environmental restrictions, which could prompt a backlash from local communities, particularly over green space concerns.
Kwarteng has also sought to expand the research and development tax credit system while improving the Enterprise Investment Scheme to attract more money to early-stage companies.
Truss said during the Tory leadership race in August she wanted new investment zones with low taxes and little regulation to boost economic growth – inspired by Margaret Thatcher’s “enterprise zones” in the 1980s from the Isle of Dogs to Corby.
The new zones will dwarf the existing program of up to 11 “free ports” originally proposed by Boris Johnson, her predecessor, which includes tax breaks, tariff benefits and looser planning restrictions.
Ministers are to announce the corporate zones as a break with the priorities of Michael Gove, former Minister for Upgrades. Gove’s main focus was on encouraging investment in so-called ‘left-back areas’.
“The plans make Gove look like a socialist,” a government insider said.
The Department of Leveling has written to councils and mayoral offices asking them to get involved in the program by Wednesday.
The letter describes the package as a “substantial” opportunity that goes beyond the existing free port model.
Peter Holmes, a fellow at the UK Trade Policy Observatory, was skeptical. “Studies of business zones have shown that they have created fewer jobs than projected and a very high proportion of them have been displaced from elsewhere, so it is difficult to see how [investment zones] would increase overall investment in the UK overall,” he said.
Paul Swinney, director of policy and research at the Center for Cities think-tank, said deregulation within a former corporate area in Birmingham city center was “less important” than making it a “more attractive place to do business” through capital investment in the redevelopment .
“What’s that in detail? Is there money behind it?” he said of the newest zones. “Deregulation alone will certainly not do it.”
Senior officials from northern local authorities were skeptical. “I think they’re realizing they need something a lot more dramatic than corporate zones,” said one. “The question is whether they can get it through Whitehall without legislation and a mandate through a general election program.”