When Liz Truss was vying to be the Conservative Party leader and our next prime minister, some of her colleagues worried that, as the anointed choice of Prime Minister Johnson, she was going to be the Boris Johnson continuity candidate.
On the economy, they could not have been more wrong.
Since becoming the prime minister two weeks ago, Ms Truss has drawn clearer ideological dividing lines between her Conservative Party and the Labour Party than we have seen since under the past three Conservative prime ministers.
The tax cut promises and protections to big business she promised during the race to be the Conservative leader were not, after all, politically convenient policies to win the hearts and minds of the Conservative Party, if not the wider public.
They are policies she intends to follow through as prime minister. She said during the leadership race she wanted to be the change candidate and she is turning the tax and spend consensus we’ve been living with, to a greater or lesser extent, since the era of New Labour on its head.
No windfall tax on energy companies’ £170bn excess profits, her energy price guarantee will be instead paid for through government borrowing, which the taxpayer will ultimately have to pay back: reversing the planned corporation tax rise for big business and scrapping the national insurance rise for those on the highest as well as lower incomes: removing the cap on bankers’ bonuses and an energy package that benefits the very rich as well as those who really need it.
It is a paradigm shift in the government approach, away from economic policy geared towards redistribution of wealth through the tax system from those with the deepest pockets to those in most need, to a new approach in which promoting growth is key to fixing public services and helping everyone.
In our first interview with the new prime minister on the 102nd floor of the Empire State Building, she made it very clear that she was comfortable with pro-growth policies taking precedent above all else.
When I asked the prime minister whether her tax cutting plans – a big boost to big business as well as richer workers – were fair, she told me this: “I don’t accept this argument that cutting taxes is somehow unfair.
“I mean, what we know is that 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.
“We should be setting our tax policy on the basis of what is going to make our country most successful, what is going to deliver that economy that benefits everyone in this country.
“And what I don’t accept is the idea that tax cuts on business don’t help people in general.”
And when I put it to Ms Truss that she was prepared to be an unpopular prime minister to follow this goal she said this: “Yes, yes I am. What is important to me is that we grow the British economy, because that is what will ultimately deliver higher wages, more investment in towns and cities across the country, that is what will ultimately deliver more money into people’s pockets, and it will also enable us to fund the services like the National health Service. And in order to get that economic growth, Britain has to be competitive.”
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Liz Truss has said she is prepared to be unpopular with her tax policy as she believes it will ultimately benefit the British economy.
Tax cutting plans carry huge risk
Her plans carry huge political and economic risk. Politically, Ms Truss is prepared to cut taxes for those who least need it and pay for it through government borrowing in pursuit of growth.
Her argument is that the public cares more about better services, better jobs, better infrastructure than they do about fairness of equality in how the state taxes its citizens and businesses.
She follows the principle that a rising tide lifts us all – but what if that growth fails to come through? And what if British workers don’t much like tax cuts that they perceive are unfair when they are already acutely feeling the squeeze?
When I put it to the prime minister that voters might not think it’s fair that their children have to ultimately pick up the bill to fund government-debt backed tax cuts for big business or the energy price guarantee plans, she gave me short shrift: “That’s a particular point of view you’re expressing, which is what people on the left of politics often express.
“What I’m saying is that by keeping taxes low and growing the economy, we will get more tax revenue in, and actually, that will succeed in the long term, in bringing the opportunities that people want to see.”
Liz Truss speaks to the media at the Empire State building in New York. Pic: Reuters
Ideological lines of red versus blue spelt out clearly by the prime minister, but in reality this view isn’t necessarily partisan.
Over two in three Britons believe there should be a windfall tax on energy companies. These are not then divides so much along the political divides of left versus right, it is more about public sentiment and voters’ approach to taxation and on this Ms Truss is clear she’s prepared to be on the wrong side of that popular divide.
In the end, she believes voters will back her come the next general election if they can get a GP’s appointment, a good job and good wage.
It is an approach that puts the UK Prime Minister on the opposite of the economic dividing line with her US counterpart, President Biden, who hit out at “trickle down economics’ via Twitter just as the PM was extolling the virtues of cutting taxes to me in our interview.
“I am sick and tired of trickle-down economics. It has never worked,” he tweeted. “We’re building the economy from the bottom and middle out.”
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It was, I presume, a coincidence, the president’s remarks intended for his domestic audience rather than a critique of the new incumbent in Number 10’s attitude to economics.
But it is clear too that the US president doesn’t agree one bit with Ms Truss’s view that cutting taxes for businesses and the wealthy will see a “trickle down” for the rest of society.
‘Much more than politics’
And back home, you have to wonder how the coalition of red wall and Tory shires MPs will take this too.
Ms Truss only won the public backing of 142 out of 353 MPs in the leadership race, despite being nailed on to win for weeks.
Her support in the party is already shallow and these policies are inevitably going to divide the disparate coalition of constituencies, and voters, Mr Johnson pulled together back in 2019.
But this is much, much more than just politics. It is also about the economic governance of the country and investors’ confidence in the Truss government. And that confidence looks shaky.
There is weakening confidence in British assets, with bonds, equities and sterling – falling to a 35 year low – all simultaneously and the Bank of England now mulling the biggest interest rate rises in three decades in response to that and surging inflation.
Read More:
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On Friday, the markets will be able to better understand – and perhaps offer a verdict on – Ms Truss’s economic plans, when her chancellor sets out the costing of her energy price guarantee and proposed tax cuts in a mini-Budget that could prove a very big moment for her new government.
And as for the PM herself, she is resolutely confident in her economic plan, telling me that while the country faces “very difficult times” this winter, she is adamant “we will get through it”.
But, be it from energy rationing this winter, to rising interest rates and inflation, so much is out of her control.
Ms Truss can set the policies, but it is ultimately the markets and the voters who will decide – and for now, there is a lot scepticism around the new PM and her policies.