London Daily

Focus on the big picture.
Friday, Jul 03, 2026

Liz Truss’s tax and spending plans sow consternation among economists

Liz Truss’s tax and spending plans sow consternation among economists

Analysis: experts are lining up to warn that her policies will increase inflation and leave the UK with higher debt

Liz Truss claims her economic agenda of tax cuts and public spending will revitalise the UK economy, but it is not just her rival prime ministerial candidate Rishi Sunak arguing that the measures will be self-defeating.

Economists have lined up to warn that her £30bn package – including the reversal of this year’s national insurance rise, the suspension of green levies on power bills, and the cancellation of a sharp rise in corporation tax in 2023 – will increase inflation and leave the government with higher debt bills.

The foreign secretary and frontrunner in the race for the Tory leadership has criticised the Treasury’s economic record during her opponent’s time as chancellor, saying it has been timid and “contractionary” when it should have been promoting growth.




Citing other European countries that have spent more money supporting households hit by the cost of living crisis, Truss has said she would allow people to keep more of their own money by taxing less. She has also touted a carer’s allowance and pushing defence spending up to 3% of GDP – amounting to an extra £86bn over the next five years – as ways to help the UK avoid a recession.

Meanwhile, the Bank of England has come under attack from Truss and her allies because she claims looser government spending should have a counterweight in tighter policy on controlling the money supply.

Harking back to Margaret Thatcher’s stance in 1979, Truss believes inflation is partly the result of cheap borrowing fostered by the central bank, so tighter monetary policy would limit rising prices. Last weekend she said the government should “look again” at the Bank’s mandate “to make sure it is tough enough on inflation”.

At the moment the BoE is independent and arrives at its own policies to bring down inflation to a 2% target. Truss is likely to cause consternation in financial markets if she seeks to meddle in the central bank’s decision-making.

Nick Macpherson, the former Treasury permanent secretary, described the tax-cutting proposals of Sunak’s rival Tory candidates, including Truss, as “less the heirs to Margaret Thatcher; more the disciples of Recep [Tayyip] Erdoğan”.

Turkey’s president has sacked more than five central bank bosses because they failed to pursue his chosen interest rate policy. It has left the country with a near-80% inflation rate and a currency worth 90% less than when Erdoğan began running the country almost 20 years ago.

Ben Nabarro, UK economist at Citi, said: “Liz Truss’ policy platform poses the greatest risk from an economic perspective with an unseemly combination of pro-cyclical tax cuts and institutional disruption.”

Robert Joyce of the Institute for Fiscal Studies thinktank warned that her £30bn worth of pledges would have implications beyond the tax system that remain unclear.

But one thing is for sure: “they will mean higher borrowing or less public spending, or some combination”, so vast swathes of Whitehall and welfare spending will need to come under the hammer. “In the end, lower taxes do mean lower spending.”

Truss’s strategy does have some backing, however. The economist Gerard Lyons emerged as a potential supporter after he told the BBC Radio 4’s World at One: “We need tighter monetary policy to tackle inflation and looser fiscal policy to promote growth.”

He dismissed claims that targeted tax cuts would be inflationary and self-defeating, saying a sharp reduction in fuel duty by cutting the green levy would push down transport costs.

Truss also cited Patrick Minford as an economist who approved her approach. The Cardiff University academic came to prominence ahead of the Brexit referendum, which he claimed could generate £135bn in extra income for the UK. Last year the government’s independent forecasters at the Office for Budget Responsibility assessed it would cost around £80bn in lost income.

The OBR also warned this month that tax cuts rarely pay for themselves. Worse for Truss and her proposals, it said, Britain’s public finances were on an “unsustainable” long-term path, with a debt burden that could more than treble without further tax rises to cover the mounting cost of an ageing population and falling fuel duties.

Newsletter

Related Articles

0:00
0:00
Close
Luxury bags take over the World Cup: style, status symbol, or just showing off?
National Productivity Institute Highlights Weak Business Investment Outside Southern England
UK High Court Orders Reassessment of Environmental Impact in Major Highway Project
UK Cyber Security Centre Warns of Rising Threat From State-Sponsored Digital Espionage
UK Education Secretary Launches National Reform of Apprenticeships and Vocational Training
Financial Conduct Authority Tightens Climate Risk Disclosure Requirements for Listed Firms
Rail Union Suspends Planned Strike Action to Enter Formal Negotiations With Operators
Northern Ireland Businesses Seek Clarity Over Post-Brexit Trade Rules
Welsh Government Launches Regional Growth Plan Targeting Transport and Digital Infrastructure
North Sea Wind Sector Attracts £5 Billion Investment Amid Expansion of Offshore Capacity
Scotland and UK Governments Establish New Framework for Coordinated Investment in Energy and Infrastructure
UK Government Launches Major Immigration and Border Policy Overhaul Review
Bank of England Signals Interest Rates to Remain Elevated Despite Easing Inflation Pressures
National Health Service Warns of Severe Winter Capacity Strain Across Hospital Trusts
Chancellor Orders Urgent Treasury Review Amid Concerns Over Structural Public Finance Gap
Prime Minister Unveils Sweeping Legislative Programme Focused on Housing, Health Service Reform and State Energy Plan
UK Parliamentary Committee Launches Inquiry Into Falling Primary School Rolls and Public Service Impact
UK House of Lords Debates Electoral Commission Powers and Political Finance Reform
UK Parliament Considers Expanding Carbon Rules to International Aviation and Shipping Emissions
UK Traffic Commissioner Revokes Hampshire Haulage Operator Licence Over Regulatory Failures
UK Parliament Examines Risks in Public Contracts Awarded to Technology Firm Palantir
UK Competition Watchdog Moves Toward More Flexible Merger Rules to Support Efficiency and Growth
UK Government Seeks Approval for £1.15 Trillion Public Spending Plan Amid Scrutiny Over Department Budgets
UK Parliament Debates Sweeping National Security and Steel Industry Nationalisation Bills
UK Government Issues Formal Apology for Historic Forced Adoption Practices and Announces £4 Million Support Scheme
UK DEFENCE AND TECHNOLOGY STRATEGY TILTS TOWARD SOVEREIGN CAPABILITY AND INDUSTRIAL INVESTMENT
UK ECONOMIC POLICY OUTLOOK SHAPED BY LEADERSHIP TRANSITION AND FISCAL SIGNALS
STERLING STRENGTHENS AMID SHIFTING MONETARY OUTLOOK AND GLOBAL LABOUR MARKET SIGNALS
UK HPV VACCINATION PROGRAM NEARLY ELIMINATES CERVICAL CANCER DEATH RISK IN YOUNG WOMEN
UK EXPANDS PRISON SAFETY REVIEW AS GOVERNMENT SEEKS WIDER SYSTEM REFORM
UK DRIVES DIGITAL ASSETS STRATEGY WITH NEW STABLECOIN REGULATORY MODEL
UK TO EXPAND AI INFRASTRUCTURE THROUGH NEW EUROPEAN TECHNOLOGY PARTNERSHIP
UK LAUNCHES £15 BILLION DEFENCE TECH SHIFT TOWARD ADVANCED MILITARY SYSTEMS
CIVIL SERVICE FACES SHIFT IN POWER STRUCTURE AS REGIONAL GOVERNANCE PLANS EXPAND
WHITEHALL CONSIDERS MAJOR DECENTRALISATION PLAN WITH SECOND GOVERNMENT HUB IN MANCHESTER
UK TARGETS SERVICES EXPORT GROWTH IN TRADE TALKS WITH CHINA AMID GEOPOLITICAL TENSIONS
POLICE WATCHDOG PROBES OFFICERS OVER HANDCUFFING OF DYING TEENAGER IN HAMPSHIRE CASE
UK REGULATORS UNVEIL DUAL OVERSIGHT FRAMEWORK FOR STABLECOINS AND DIGITAL ASSETS
KEIR STARMER ANNOUNCES £15 BILLION DEFENCE TECHNOLOGY BOOST IN FINAL MAJOR POLICY MOVE
ANDY BURNHAM SIGNALS STRICT FISCAL RULES AS LABOUR LEADERSHIP RACE SHAPES MARKET OUTLOOK
POUND STERLING HITS ONE-YEAR HIGH AS BANK OF ENGLAND SIGNALS NO IMMINENT RATE CUTS
UK Government Confirms Rejected Asylum Seekers to Remain Amid Enforcement Challenges
UK-China Economic Talks Focus on Services Trade and High-Value Sectors
Buckingham Palace Revamp Plans Unveiled to Modernise Royal and Public Facilities
Two Dead After Light Aircraft Crash in Essex Field, Investigation Underway
Princess Diana Marked at 65 With UK Tributes Reflecting on Her Public Legacy
England Teachers Face New Pay Cap Rules for Academy School Leaders Under Education Reform
Dublin Security Alert Escalates After Stabbing and Reports of Transport Disruption
UK Government Faces Scrutiny Over £10,000 Asylum Living Cost Contribution Requirement
England Prepares World Cup Knockout Match Against Democratic Republic of Congo
×