April 25, 2024

Tax Cuts are Right for the UK – Liz Truss

The Prime Minister of the UK, Liz Truss, has defended her government’s decision on the huge tax cuts after the Pound and bonds took a dive. The PM blamed the global economy for the economic fallout resulting from the package announced last week.

The Best Economic Plan

Liz Truss said during an interview with radio stations on Thursday that the country is facing a difficult economic time. The government had to take urgent action to have the economy grow and that requires making difficult and controversial decisions.

In less than one month after assuming office, Truss has been confronted with a policy confidence crisis that in turn led to the Pound’s collapse. It also caused an increased rate that is now pushing the country in the direction of an imminent recession and posing a threat to housing.

But for the Prime Minister, it is not the time to back-pedal on those new policies, and high taxes at this time might lead the country faster into a recession. Other players in the British economy disagree with her. Moody’s Investment Service is of the opinion that the tax cut plan might damage public finance permanently and it will reduce economic growth.

As the PM granted the interview, the government bonds extended the slide. The ten-year bond yields rose by 21 basis points to reach 4.22%. But the Pound was still in the earlier losing range as it traded close to $1.077.

More Criticisms

Truss emphasized that the government has taken the right course of action. She said it is the right plan.

Truss was addressing the market situation for the first time. The latest decline was triggered on Friday after the Chancellor, Kwasi Kwarteng, announced that there would be a tax cut. The unfunded tax cut is the largest in the UK in fifty years.

Due to the fallout that ensued, the Bank of England has been compelled to dramatically intervene so it could avoid a bond market crash. Note that the IMF has urged the British PM to reconsider the new economic plan.

Senior executives in the UK have equally voiced their criticisms of the government’s plan. Next Plc boss, Simon Wolfson, blames the government for the Pound’s fall and the worsening condition of the UK’s inflation reports.

Gina Raimondo, the US Secretary of Commerce, said the British government’s plan of slashing taxes will not aid economic growth. Lawrence Summers, former US Secretary of Treasuries shared the same opinion.

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