Liz Truss is to urge world leaders to join Britain in introducing far-reaching tax cuts despite US president Joe Biden pouring scorn on “trickle down economics” ahead of their first bilateral talks in New York.
In a speech to the United Nations on Wednesday, the prime minister will argue that the free world must prioritize economic growth to deny authoritarian states like Russia the chance to manipulate the global economy.
However, her embrace of Reaganite economic policy puts her on a collision course with the Democratic president who tweeted yesterday that he was “sick and tired” of the approach, which he claimed had never worked.
In her latest break from Treasury orthodoxy, Truss vowed on Tuesday to review all tax rates to help struggling households and businesses through the cost of living crisis. The prime minister’s remarks pave the way for a radical overhaul of the system that could include looking again at income tax brackets and come amid reports she is planning a cut to stamp duty as part of her emergency mini-budget on Friday.
In an interview at the top of the Empire State Building on Tuesday, she told the BBC: “We do have to take difficult decisions to get our economy right. We have to look at our tax rates. So corporation tax needs to be competitive with other countries so that we can attract that investment.”
She had already signaled that further tax cuts, beyond the changes expected on Friday, could be on the cards. She told reporters on the plane to the US: “Lower taxes lead to economic growth, there is no doubt in my mind about that.”
The Times reported that Truss believes that cutting stamp duty – which raises about £12bn a year for the Treasury – would help growth by encouraging more people to move.
Truss’s first talks with Biden are set against a backdrop of tensions over post-Brexit trading arrangements in Northern Ireland. Despite the UK’s attempts to separate out the issues, the Biden administration has warned that a free trade deal is unlikely until the row over the Northern Ireland protocol is resolved.
In a move likely to disappoint Brexiters, Truss downplayed expectations that any trade agreement was imminent, saying: “There aren’t currently any negotiations taking place with the US and I don’t have any expectation that those are going to start in the short to medium term.”
US national security adviser Jake Sullivan said Biden would use the meeting to “encourage the UK and the European Union to work out a practical outcome that ensures there is no threat to the fundamental principles of the Good Friday agreement”.
The two leaders are also at odds over their approaches to achieving growth, with Truss supporting ‘trickle down’ economics during the Tory leadership contest, arguing it was wrong to view all economic policy through the “lens of redistribution”.
Biden, meanwhile, tweeted: “I am sick and tired of trickle-down economics. It has never worked. We’re building an economy from the bottom up and middle out.”
Yet Truss is expected to argue her economic case in her keynote address to the UN, telling fellow world leaders: “We want people to keep more of the money they earn, because we believe that freedom trumps instruction. We are reforming our economy to get Britain moving forward once again.
“The free world needs this economic strength and resilience to push back against authoritarian aggression and win this new era of strategic competition. We will no longer be strategically dependent on those who seek to weaponise the global economy’”.
In a broadcast round on Tuesday, Truss admitted her tax-cutting plans will initially benefit the rich more than the rest of society, but doubled down on reversing a recent rise in national insurance would benefit top earners by about £1,800 a year, and the lowest earner by about £7.
“I don’t accept this argument that cutting taxes is somehow unfair,” she told Sky News. “What we know is 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 help our country become successful. What is going to deliver that economy that benefits everybody in our country. What I don’t accept is the idea that tax cuts for business don’t help people in general.”
Truss, who is also proposing to scrap the cap on bankers’ bonuses, said she was prepared to be an unpopular prime minister to bring in measures she believes will grow the economy. “Yes, yes I am,” she said. “What is important to me is that we grow the British economy”.
Some Tory MPs believe that chancellor Kwasi Kwarteng could bring forward by a year the pledge made by his predecessor Rishi Sunak when chancellor, to cut income tax by 1% from 2024. Business groups are expecting changes to business rates and cuts to VAT to help with the energy crisis, as well as a longer-term review.
Truss brushed aside concerns about the falling pound and general state of the economy. “My belief is that Britain’s economic fundamentals are strong,” she said, rejecting claims that interest rates would rise as a result of her approach.
Earlier, she said that higher energy bills were a price worth paying to guarantee the UK’s security from foreign aggressors, but the cost should not be passed on to households.