London Daily

Focus on the big picture.
Monday, Jun 02, 2025

Liz Truss’ tax cutting gamble

Liz Truss’ tax cutting gamble

Britain’s new prime minister doesn’t have much time — or political capital.

She's the breed of prime minister the Tory right have long wanted and she's eying one big bet to show hers is a winning formula.

After a hot summer leadership contest dominated by debate about tax cuts, Liz Truss' new Chancellor Kwasi Kwarteng on Friday outlined an economic plan that significantly cut taxes and increased government borrowing. Truss' mission, her team say, is all about growth.

This so-called mini-budget is anything but mini, with the Bank of England warning Thursday the British economy may already be in recession and voters feeling the pinch as inflation, energy costs and rising interest rates bite.

Truss is betting her premiership on true-blue pleasing tax cuts. “Lower taxes lead to economic growth, there is no doubt in my mind about that,” she told journalists on her way to New York earlier this week.

Truss supporters, such as John Redwood, argue the £30 billion or £40 billion of tax cuts she advocated in her leadership campaign were "sensible," citing the need to "offset the very big hit to real income which people have experienced from inflation.”

But with a general election expected in 2024, Truss doesn't have much time. Unlike her predecessor, Boris Johnson, she is not a proven election winner with a loyal fan base. More of her MP colleagues initially backed her main rival Rishi Sunak, her margin of victory among the grassroots was less than expected and she has left political rivals smarting by largely appointing loyalists to the top positions in her new government.

“I suspect there are many Conservative MPs who will be ready to drop her immediately if the economy doesn’t turn quickly,” said a former minister, so far overlooked in the recent reshuffle.

While most Tories are willing to give their new leader a chance, many will eye the markets as the real barometer of Truss' premiership.

“[The market response] could go badly wrong very quickly. That is the audience that I think is more likely to constrain what they do, rather than either public opinion or Conservative parliamentary opinion,” according to David Gauke, a former chief secretary to the Treasury under Theresa May.

There is a degree of trepidation from some Conservatives about what they see as an “enormous gamble” being taken by Truss, Gauke said. But Truss is “probably in a position to take that gamble,” he added, pointing out she had been pretty explicit about her plans and values during the leadership campaign.

He warned a decision to exclude the Office for Budget Responsibility, the government’s fiscal watchdog, from the budgeting process could “undermine confidence.”

Others agreed Truss' window of opportunity to cement her position is slight. “You are all-powerful at the start, but power can drain away very fast, and you can become a prisoner of your own backbenches very quickly,” one former government adviser warned.


It's the economy, stupid


The new prime minister will certainly face plenty of criticism.

Her supporters' insistence that "Treasury orthodoxy" is holding Britain back, underlined by the sacking of the finance ministry's most senior civil servant, Tom Scholar, has already raised the temperature. While this narrative might play well with Truss' right-wing supporters, it risks spooking the markets.

“[Markets] basically need to know that politicians do feel constrained by the need to have a sustainable position, and I'm sure [Kwarteng] will say that,” said Torsten Bell, chief executive of the Resolution Foundation, a center-left think tank.

“If we're really arguing that our growth strategy is to borrow lots more, that that will then pay for itself, then they don't believe that, and they are right, and so they would then start asking questions,” he said.

“You don't want to be seen as the one country that everyone decides is a bad bet,” he added.

The head of the OBR made clear he offered to provide a “less complete” analysis of the economy in time for Friday’s snap announcement, but the Truss government declined. They insist the government will stick to the usual two forecasts, with a full budget expected later this year.

Critics are also skeptical about Truss' plans because of wider U.K. economic prospects, including its departure from the European Union.

Former Sainsbury’s Chief Executive Justin King told ITV on Wednesday low levels of investment had been down to the U.K. becoming "less attractive internationally for lots of reasons, one of which is Brexit."

However, others argue voters may be more forgiving.

“Economic conditions don't need to be amazing, they just need to have a sense of improvement and then crucially a plan for the next phase,” said James Johnson, a former No. 10 pollster who now runs his own company JL Partners.

Friday’s statement will be “less about the ins and outs of the specific details,” he said, and “more about showing movement and leadership,”

“If [No. 10] can come out of this feeling that they have shown that she gets it, not necessarily in a values way, but in terms of ‘she is acting to do something on it and acting to do what she thinks is right to fix the crisis', then I think voters will give them the benefit of the doubt,” he said.

But he cautioned voters did worry about where the money for tax cuts would come from — a question Kwarteng will need to answer.

As one more downbeat MP put it: “Stopping people losing any more money is never going to be a way of gaining in the polls, but the bottom is very, very far from where we are now."

Newsletter

Related Articles

0:00
0:00
Close
Ukraine Executes Long-Range Drone Strikes on Russian Airbases
Conservative Karol Nawrocki wins Poland’s presidential election
Study Identifies Potential Radicalization Risk Among Over One Million Muslims in Germany
Good news: Annalena Baerbock Elected President of the UN General Assembly
Apple Appeals EU Law Over User Data Sharing Requirements
South Africa: "First Black Bank" Collapses after Being Looted by Owners
Poland will now withdraw from the EU migration pact after pro-Trump nationalist wins Election
"That's Disgusting, Don’t Say It Again": The Trump Joke That Made the President Boil
Trump Cancels NASA Nominee Over Democratic Donations
Paris Saint-Germain's Greatest Triumph Is Football’s Lowest Point
OnlyFans for Sale: From Lockdown Lifeline to Eight-Billion-Dollar Empire
Mayor’s Security Officer Implicated | Shocking New Details Emerge in NYC Kidnapping Case
Hegseth Warns of Potential Chinese Military Action Against Taiwan
OPEC+ Agrees to Increase Oil Output for Third Consecutive Month
Jamie Dimon Warns U.S. Bond Market Faces Pressure from Rising Debt
Turkey Detains Istanbul Officials Amid Anti-Corruption Crackdown
Taylor Swift Gains Ownership of Her First Six Albums
Bangkok Ranked World's Top City for Remote Work in 2025
Satirical Sketch Sparks Political Spouse Feud in South Korea
Indonesia Quarry Collapse Leaves Multiple Dead and Missing
South Korean Election Video Pulled Amid Misogyny Outcry
Asian Economies Shift Away from US Dollar Amid Trade Tensions
Netflix Investigates Allegations of On-Set Mistreatment in K-Drama Production
US Defence Chief Reaffirms Strong Ties with Singapore Amid Regional Tensions
Vietnam Faces Strategic Dilemma Over China's Mekong River Projects
Malaysia's First AI Preacher Sparks Debate on Islamic Principles
White House Press Secretary Criticizes Harvard Funding, Advocates for Vocational Training
France to Implement Nationwide Smoking Ban in Outdoor Spaces Frequented by Children
Meta and Anduril Collaborate on AI-Driven Military Augmented Reality Systems
Russia's Fossil Fuel Revenues Approach €900 Billion Since Ukraine Invasion
U.S. Justice Department Reduces American Bar Association's Role in Judicial Nominations
U.S. Department of Energy Unveils 'Doudna' Supercomputer to Advance AI Research
U.S. SEC Dismisses Lawsuit Against Binance Amid Regulatory Shift
Alcohol Industry Faces Increased Scrutiny Amid Health Concerns
Italy Faces Population Decline Amid Youth Emigration
U.S. Goods Imports Plunge Nearly 20% Amid Tariff Disruptions
OpenAI Faces Competition from Cheaper AI Rivals
Foreign Tax Provision in U.S. Budget Bill Alarms Investors
Trump Accuses China of Violating Trade Agreement
Gerry Adams Wins Libel Case Against BBC
Russia Accuses Serbia of Supplying Arms to Ukraine
EU Central Bank Pushes to Replace US Dollar with Euro as World’s Main Currency
Chinese Woman Dies After Being Forced to Visit Bank Despite Critical Illness
President Trump Grants Full Pardons to Reality TV Stars Todd and Julie Chrisley
Texas Enacts App Store Accountability Act Mandating Age Verification
U.S. Health Secretary Ends Select COVID-19 Vaccine Recommendations
Vatican Calls for Sustainable Tourism in 2025 Message
Trump Warns Putin Is 'Playing with Fire' Amid Escalating Ukraine Conflict
India and Pakistan Engage Trump-Linked Lobbyists to Influence U.S. Policy
U.S. Halts New Student Visa Interviews Amid Enhanced Security Measures
×