British Prime Minister Liz Truss and US President Joe Biden met officially for the first time at the United Nations General Assembly in New York after clashes over economic policy between the two leaders.
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LONDON — The British government is set to announce sharp tax cuts for businesses and the wealthy on Friday in a controversial mini-budget that shows the lengths to which new Prime Minister Liz Truss is willing to go to overhaul Britain’s economic policy, even if it causes a political backlash. anger .
Truss, whose political stance has been compared to that of her political idols Ronald Reagan and Margaret Thatcher by Cowardly, has said she is prepared to cut taxes at the top of the economic spectrum in a bid to boost UK growth as part of a strategy commonly known as trickle-down economics.
But the approach, which comes as Britain faces its worst cost-of-living crisis in decades, has drawn criticism from both Britain’s political opponents and Downing Street’s closest international ally, the US president.
Biden tweeted on Tuesday that he was “sick of the trickle-down economy,” adding that “it never worked.”
Downing Street said it was “ridiculous” to suggest the comment was directed at Truss, the FT reported. The White House did not immediately respond to CNBC’s request for comment.
It came a day before the pair officially met for the first time in New York on Wednesday, after which Truss tweeted that “Great Britain and the United States are staunch allies.”
Britain’s growth-focused mini-budget, to be announced on Friday by new UK finance minister Kwasi Kwarteng, is expected to include plans to roll back a planned rise in corporate tax, lift a cap on bankers’ bonuses and potentially cut payments. duty, a tax paid on the purchase of housing.
Kwarteng also confirmed early on Thursday that the government would reverse a recent increase in the tax employees pay on wages, known as national insurance.
Critics, including Britain’s opposition Labor Party, argue that such measures disproportionately benefit the wealthy. Higher earners will see greater relative savings from tiered NI than lower earners, while pensioners and those on benefits will be exempt from the savings.
However, Truss said on Tuesday that she was prepared to be unpopular if necessary to get Britain’s economy going.
“I don’t buy that argument that the tax cuts are somehow unfair,” she said Sky News.
“We know that people with higher incomes generally pay more in taxes, so when you cut taxes, there’s often a disproportionate benefit because those people pay more in taxes in the first place,” she added.
More details are also expected on a the previously announced limit on the energy bills for households and businesses that have increased since Russia’s war in Ukraine.
On Thursday, the central bank implemented its own the seventh rate hike in a row, increasing the base rate by 0.5% to 2.25%. Sterling rose slightly after the announcement but remains at a multi-decade low dollar.
Analysts say the announcement will be marked by a “critical moment” for the direction of the UK economy, both the government and the central bank, working independently of each other, would seem to be pulling in opposite directions.
“A bank seeking to dampen consumer demand and a government seeking to boost growth may now be pulling in opposite directions,” David Bharier, head of research at the British Chambers of Commerce business group, said in a note on Thursday.
Questions have also been raised about how the policy will be financed, with tax cuts expected to increase borrowing. The trust argued that the resulting growth would generate more revenue to cover borrowing costs.
“The need for increased future borrowing due to continued central bank tightening measures could continue to increase future borrowing costs,” said Niall O’Sullivan, investment director, multi-asset strategy, EMEA Neuberger. Berman said.
Matthew Ryan, head of market strategy at global financial services firm Ebury, estimates these borrowing costs at 200 billion pounds ($225 billion).
“All said and done, we estimate that the government’s spending package could top £200bn over the next two years, undermining existing plans for fiscal consolidation,” he told CNBC via email.
Ryan noted that the government’s fiscal measures could “significantly reduce the likelihood of a deep and prolonged recession in the UK”, but added that risks remained in terms of higher inflation in the medium term and a rise in the UK’s government deficit and net debt levels.
This was reported by the Bank of England on Thursday that is, it was possible that the UK was already in recession.