Truss rejects tax cuts as the Conservative convention begins in the UK

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Published: 10/3/2022 4:37:33 AM
UK Prime Minister Liz Truss (right) sat next to her Chancellor Kwasi Kwarteng at the opening of the Conservative Party conderence on Sunday

UK Prime Minister Liz Truss (right) sat next to her Chancellor Kwasi Kwarteng at the opening of the Conservative Party conderence on Sunday

UK Prime Minister Liz Truss admits she "could have laid the ground better" for her plan to reduce taxes for the wealthy. Four weeks into the job, she faces scrutiny from her own party over her handling of the scandal.

UK Prime Minister Liz Truss insisted Sunday that her package of tax cuts — to be paid for with new government debt — would help to get the economy growing, despite the measure fueling a run on the British pound.

But as the annual conference of her ruling Conservative Party got underway in Birmingham, she admitted that the announcement could have been handled better.

"I do stand by the package we announced... but I do accept we should have laid the ground better there," Truss, told the BBC.

The PM said the tax cuts, along with a cap on energy prices, would "put us [Britain] on a good long-term footing."

Laura Kuenssberg (left) interviews Prime Minister Liz Truss on the BBC on October 2, 2022.UK Prime Minister Liz Truss defended her tax cut plan Sunday ahead of the Conservative Party conference

Tax cut on wealthy not discussed with Cabinet

But she also admitted that she did not discuss the abolition of a 45% tax band for the wealthy with her whole Cabinet and also said that the unpopular move "was the Chanellor's decision," referring to her chancellor of the exchequer (or finance minister) Kwasi Kwarteng.

On September 23, barely two weeks after Truss was appointed Prime Minister, Kwarteng announced a mini-budget to shore up Britain's finances amid decades high inflation, the energy crisis and an imminent recession. The budget included several expected changes the government had already made clear, but one notable surprise as well.

The budget scrapped increases in National Insurance and corporation taxes and removed a social care levy. It also cut tax rates for all working people and halted a freeze on bankers' bonuses. But what caught analysts and those watching Truss' leadership campaign off guard was the additional decision to reduce the top rate of income tax for high-earners from 45% to 40%. 

Financial markets and the UK currency tanked in response to the 45 billion pound (€51 billion, $50 billion) package over affordability concerns. The Bank of England staged an emergency intervention to bail out embattled pension funds.

Truss insisted Sunday that despite taking on new loans to fund the COVID furlough scheme and the energy price cap, the government had a plan to bring down borrowing over the medium term to calm the markets. In essence, she said she hoped to reduce debt as a "share of GDP" by growing the economy. Given that UK public sector net debt as a share of GDP has risen from 34% in 2008 (or 80% before the COVID pandemic) to 96% now, this would require substantial and probably unrealistic levels of growth.

The prime minister has already faced several days of deep public anger over tax cuts for the rich just as a cost of living crisis forces millions of Britons to choose whether to heat or eat.

Her predecessor Boris Johnson had already lost the support of millions of voters, but now the Conservatives trail the opposition Labour Party by 19%, according to research house Opinium. Labour would have a 46% voter share compared to 27% for Truss' right-wing party if an election were held now, the poll found.

The same poll showed that 55% of voters disapproved of the new prime minister and just 18% approved.

Anger likely to spill over at Tory conference

On Sunday, Truss prepared to face more criticism from within her ruling Conservatives at their four-day annual gathering in Birmingham, in central England.

Ahead of the conference, senior Conservative MP Michael Gove branded the tax plans "profoundly" wrong, telling the BBC there would need to be "a course correction."

Gove said that using borrowed money to fund tax cuts was "not Conservative."

Another Conservative politician called for the mini-budget plan to be independently reviewed more quickly than the current timetable of November.

The disapproval around her budget plan has already sparked talk that Truss could face her own leadership challenge — the second for the Conservatives after Johnson was forced to quit by the resignation of much of his cabinet. 

Kwarteng is due to address the party's four-day grassroots gathering on Monday before Truss closes it with the leader's keynote speech on Wednesday.

Footage from the conference in the left-leaning city also showed leading Conservatives facing sometimes hostile protesters on entry; Jacob Rees-Mogg entered with a police escort.




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