Monday, Nov 28, 2022

UK PM Liz Truss Defends Her Mini Budget Amid Criticism, Says It's Needed For Long-Term Growth

Against her prime ministerial race challenger Rishi Sunak's plan of targeted relief measures, Lizz Truss had proposed tax cuts, reversing proposed tax hikes, and putting caps on bills.

Prime Minister of United Kingdom Liz Truss
Prime Minister of United Kingdom Liz Truss Instagram/Liz Truss

United Kingdom Prime Minister Liz Truss on Thursday defended her economic policies and said they were essential for long-term growth.

As the UK faces severe cost of living crisis, Truss has cut taxes, frozen energy bills, and announced subsidies for certain sectors. These measures have been criticised by many quarters, including her Opposition and a section of economists. However, Truss termed her policy measures "as decisive action". 

Since the announcement of Truss's 'mini budget', the British Pound has fallen to its lowest in decades against the US Dollar. The stock market has also reacted negatively to the massive spending and borrowing announced in the 'mini budget', trigerring a sell-off.

What steps is Liz Truss's government taking?

Against her prime ministerial race challenger Rishi Sunak's plan of targeted relief measurse, Truss had proposed tax cuts, reversing proposed hikes announced by Sunak as Chancellor, and putting caps on bills. Truss initiated these measures after being appointed as the Prime Minister of UK.

The UK is going through worst cost of living crisis, which in simpler terms refers to the falling disposable income of people and rising costs such as of food and energy, including gas and petroleum.

Some of the steps announced in the mini-budget are:

1. Energy Price Guarantee will save the typical household £1,000 a year on their energy bill
2. Energy Bill Relief Scheme halving the cost of business energy bills, reducing peak inflation by about 5 percentage points
3. Caps on energy bills of households and businesses, costing £60 billion a year
4. Cancelling the planned rise in corporation tax, keeping it at 19 per cent
5. Reversing the 1.25 percentage point rise in National Insurance contributions, a change which the government claims will save 9,20,000 businesses almost £10,000 on average next year

Besides these steps, stamp duty has also been cut, with the goal of incentivising purchase of property. 

Soaring energy bills had been key to the UK cost of living crisis, particularly with the onset of winter not far away when energy consumption would rise because of heating requirements. 

"Cuts to stamp duty will get the housing market moving and support first-time buyers to put down roots. New Investment Zones will bring business investment and release land for new homes in communities across the country. And we're accelerating new road, rail and energy projects by removing restrictions that have slowed down progress for too long," said Truss's Chancellow Kwasi Kwarteng.

How is Liz Truss defending her mini budget?

In her first interviews since the tax-cutting and high government, borrowing measures were tabled by Kwarteng, Truss insisted "controversial and difficult decisions" needed to be taken to improve the situation in the UK.

Truss was keen to keep the focus on the largely welcome action taken to freeze fuel bills for households and businesses amid spiralling global energy costs in the wake of the Russia-Ukraine conflict.

She said, "We had to take decisive action to help people through this winter and next winter. I understand that families are struggling with their fuel bills and we had to take urgent action to get our economy growing and get Britain moving and also deal with inflation. And, of course, that means taking controversial and difficult decisions and I am prepared to do that as Prime Minister because what’s important to me is that we get our economy moving."

Challenged repeatedly over the tumbling pound against the dollar and the Bank of England having to step in with emergency measures to buy back the country’s long-term bonds, Truss insisted that the tax cuts announced last week were the right answer.

She said, "If we have higher taxes going into difficult economic times that are likely to lead to a recession. I want people to stay in jobs and earn higher wages."

Questioned on whether her government's policies of cutting taxes for the very rich were fair to the wider public amid a cost-of-living crisis, Truss said, "The reality is having lower taxes across the board helps everybody because it helps grow the economy and for too long the debate in this country has been about distribution, not how we grow our economy. It is not fair to have a recession, it is not fair to have a town where you are not getting the investment, it is not fair if we don't get high-paying jobs in the future because we have got the highest tax burden in 70 years. That's what is not fair."

The scheduled interview rounds come ahead of the governing Conservative Party’s annual conference, starting in Birmingham this weekend. It will be Truss’s first outing as party leader at the annual event, where the economy and ongoing turmoil are expected to dominate much of the agenda.

Truss was elected as the Leader of the Conservative Party earlier this month, thus replacing Boris Johnson as the Prime Minsiter Borish Johnson. A day after her election as party leader, she was appointed as the Prime Minister of the United Kingdom by Queen Elizabeth II, who died two days later.

(With PTI inputs)