UK Politics

The £30bn tax-slashing plans of Liz Truss have been savaged by economists, who are warning they will fuel inflation and risk a return to austerity while busting Treasury rules.The Tory leadership race favourite was dragged into a damaging row about the credibility of her strategy after she argued it would tame soaring inflation – turning economic orthodoxy on its head.One economics professor told The Independent the claim was “ridiculous”, while the respected Institute for Fiscal Studies went further, also highlighting the danger for public services and spending rules.The row came as Rishi Sunak rejected bringing forward his 1p income tax cut – announced for spring 2024 – to woo Tory members away from Ms Truss, and underline his “fiscal responsibility” credentials.The IFS concluded Ms Truss’s proposals would “likely result in the current fiscal rules being broken”, requiring borrowing for day-to-day spending and leaving debt still rising at the next election.RecommendedThe think tank warned of a “deterioration in the quality” of public services if, as she has suggested, Ms Truss puts tax cuts ahead of protecting services against rising inflation in her emergency autumn budget.The damning verdict came as the foreign secretary appeared to be coasting to victory in the contest, securing a yawning 24-point lead over her rival Mr Sunak in a poll of Tory members.On the campaign trail in Peterborough, Ms Truss doubled down on her plans, rejecting the IFS warning that she would break fiscal rules and insisting her tax cuts were “affordable”.She signalled her readiness to make cuts if necessary, saying: “When I was a Treasury minister, I was in charge of public spending. I controlled public spending effectively.”Earlier, in her first major campaign interview, the foreign secretary raised eyebrows by telling BBC Radio 4: “My tax cuts will decrease inflation.”The package includes reversing the national insurance rise to fund the NHS (annual cost £13bn), scrapping the planned hike in corporation tax from 19 per cent to 25 per cent (£17bn), waiving the green levy on energy bills (cost unknown) and more help for carers to take time off work (cost unknown).Ms Truss dismissed the “consensus of the Treasury, of economists”, accusing them of “peddling a particular type of economic policy for 20 years” that “hasn’t delivered growth”.“What people in Britain desperately need now is change. We need to unleash investment in our country,” the candidate insisted, arguing that her tax cuts would boost “the supply side of the economy”.“The reason we have inflation is it’s a supply shock, combined with a slightly loose monetary policy over time,” Ms Truss said, adding of her strategy: “It’s not a gamble.”But Dr Jo Michell, associate professor of economics at UWE Bristol, told The Independent: “The tax cuts she’s proposing are more likely to be inflationary so, on balance of probability, her comments are false.“It’s certainly a gamble. Saying the plan has no risk [of increasing inflation] is ridiculous.”Frances Coppola, a financial economist and writer, warned of a strong likelihood that the plans would “backfire” and damage the economy, saying: “These tax cuts are likely to be inflationary in the short-term.”She likened the situation to Edward Heath’s “dash for growth”, blamed for runaway inflation in the 1970s, adding: “Liz Truss is using exactly the same argument – that inflation will fix itself if we get the economy growing.”Mr Sunak added his own criticism, agreeing that such tax cuts would be “inflationary”, telling LBC Radio: “If the government goes on a huge borrowing spree, that is only going to make the situation worse.”The former chancellor has admitted he is the outsider in the battle for No 10, despite winning the support of 137 Conservative MPs, a sizeable lead on the foreign secretary’s 113.As well as the tax cuts row, he is vulnerable to the anger of some Tory members that he helped trigger Boris Johnson’s departure – by resigning – while Ms Truss stood by him.And his reputation has not fully recovered from the controversy over his wife’s non-dom tax status, or the revelation he had a US green card while he was chancellor.In his interview, Mr Sunak struggled to back up his claim to the Thatcherite mantle, pointing to his freeports idea as an example of radicalism that could match hers.RecommendedHe said it would be “a priority” to make the controversial Rwanda deportations policy work, alongside appointing a new ethics adviser after the prime minister refused to fill the post.And he sought to exploit his greater popularity with the general public, claiming: “If you look at all polling evidence, it’s pretty clear that I am the best person to defeat Sir Keir Starmer.” More

The Brexit divorce bill negotiated by Boris Johnson has increased by nearly £10bn compared to the official estimate when the UK left the EU, ministers have admitted.The Treasury slipped out an “updated government estimated of the financial settlement” in a written ministerial statement on Thursday as MPs headed back to their constituencies for summer recess.The statement, from chief secretary to the Treasury Simon Clarke, says the bill is now £42.5bn, which “shows an increase against the original range”.When Britain left the EU in January 2020 the Office for Budget Responsibility put the figure at £32.9bn, meaning the cost of the financial settlement has soared by nearly £10bn.Opposition parties said Boris Johnson’s “terrible deal” was costing taxpayers RecommendedIn the statement, the minister insisted that the figure should be compared to the “original range” of £35-39bn, which would make for a smaller but still substantial increase of around £4bn.But the timing of the Treasury’s statement at the start of the summer recess means MPs will be unable to hold ministers to account for the increase in the Commons, because it will not be sitting.The Treasury says the increase is “primarily due to the most recent valuation of the UK’s obligation under Article 142 for EU pensions”. The government pledged to pay its share of EU official pensions as a condition for getting a withdrawal agreement and avoiding a no-deal Brexit.The increase in these payments is related to higher inflation, which has soared to record levels in recent months.The Treasury also said in the statement that it does not plan to release further estimates of the bill, even if it increases further – and that the actual costs will be buried in departmental small print.“As all payments will be made from departmental accounts, HM Treasury do not plan to replicate or consolidate financial reporting on the TCA in future editions of the statement,” the minister said.“Nor do we intend to report annually our revised estimate of liabilities expected under the TCA, because actual costs will, in future years, appear in the departmental resource accounts.”Layla Moran, the Liberal Democrats’ foreign affairs spokesperson, said: “Boris Johnson’s terrible deal, backed by Liz Truss and Rishi Sunak, is costing British taxpayers billions of pounds. This is the price of years of Conservative chaos and neglect.Recommended“Combined with the government’s botched trade agreements, they are leaving British farmers and businesses wrapped in red tape – unable to compete.“The Conservative government must come clean about how much more their bad deal will cost the country in future.” More

Rishi Sunak has insisted that re-appointing an independent ethics adviser will be “one of the first things” he does in government if he wins the race to succeed Boris Johnson in No 10.The former chancellor, who is competing against the foreign secretary Liz Truss in the Tory leadership contest, added that he would “probably” bring back Lord Christopher Geidt if he is prepared to return.It comes after the outgoing prime minister ignited outrage last month with plans to scrap the post of independent ethics adviser after suffering the humiliating resignations of two holders of the role.Lord Geidt dramatically quit as ethics adviser to Mr Johnson in June after a string of scandals, and said he could “not be party to advising on any potential law-breaking”, ramping up pressure on the PM’s position.Following his resignation, No 10 failed to appoint a successor and refused to say whether Lord Geidt would be replaced, adding: “We haven’t made a final decision on how best to carry out that function.”RecommendedQuizzed on the issue after being confirmed as one of the final two contenders in the race to replace Mr Johnson, Mr Sunak told LBC: “I definitely will reappoint an independent ethics adviser and it’ll be one of the first things I’ll do.”The ex-chancellor said he had not had any conversations with the departed adviser Lord Geidt, but when asked whether he would reappoint him if he was prepared to return, he replied: “Well I probably would.“I thought he did a good job in the first place. I haven’t spoken with him about it, so I don’t want to put him in an awkward position.”The former chancellor added: “Restoring trust is at the heart of what I want to bring to the job and one of the first things I will do is make sure we put in place the structures and accountabilities so that all of you listening can have faith that the system will work and if people are not behaving in the way they should be there’ll be proper accountability.“Having an independent ethics adviser is obviously critical to doing that”.RecommendedEarlier on Thursday, however, a new YouGov poll of Tory members showed Mr Sunak trailing his rival Ms Truss, who is 24 points ahead, in the Tory leadership contest.YouGov said its survey of 730 members also showed that the foreign secretary, who has the backing of some of Mr Johnson’s closest allies, “holds sizeable advantages over Rishi Sunak on key metrics such as trustworthiness and ability to lead the party”. More

Liz Truss has widened her lead over Rishi Sunak in the race to succeed Boris Johnson in No 10, according to a new poll of Tory members.Just 24 hours after the pair made it through to the final run-off in the Conservative leadership contest, the YouGov poll gives the foreign secretary a 24-point lead over the former chancellor.The research – conducted after the final MPs’ ballot on Wednesday – shows that 62 per cent of party members intend to vote for Ms Truss, compared to 38 per cent for Mr Sunak.The pollster’s previous survey earlier this week gave Ms Truss, who has pledged to introduce multi-billion pound tax cuts from “day one”, including reversing a planned hike in corporation tax, a 20-point lead among members.YouGov added in its most recent poll of 730 members that the foreign secretary, who has the backing of some of Mr Johnson’s closest allies, “holds sizeable advantages over Rishi Sunak on key metrics such as trustworthiness and ability to lead the party”.RecommendedWhile just 18 per cent of Tory members said Ms Truss cannot be trusted to tell the truth – compared to 63 per cent who said she could – 40 per cent said Mr Sunak could not.It comes as the pair begin the arduous task of competing to win over the support of members in hustings across the country over the summer, before the new Tory leader and the UK’s next prime minister is announced on 5 September.In her first campaign visit since winning a spot in the final two, Ms Truss took a swipe at her rival and said it would be “very hard for Conservatives to win an election” if there is no change to the current economic policy.Asked if Mr Sunak could win an election as a Tory prime minister, she told broadcasters: “I think the problem is that if we continue with our current economic policy, which is forecast to lead to a recession, it will be very hard for the Conservatives to win an election.“I’m somebody who pushes through, gets things sorted out and gets things done. That’s why I want to be prime minister. This is a critical time for our country. We need bold action.“We are in economic difficulty, the whole world is in economic difficulty. It’s not time for business as usual.”RecommendedIn the fifth and final ballot of MPs – the process that whittled down the contenders to just two to face the membership – Mr Sunak emerged as Tory MPs’ choice, scooping 137 votes – 38 per cent of the parliamentary party.Ms Truss won the support of 113 (32 per cent), after gaining the backing of the 59 supporters of fellow right-winger Kemi Badenoch, who was eliminated in the previous round. More

Rishi Sunak has rejected bringing forward his promised income tax cut as he battles to win over Tory members leaning to the tax-slashing leadership favourite Liz Truss.The former chancellor – whose pitch is “fiscal responsibility” – is nevertheless under pressure to accelerate his planned 1p reduction off the basic 20p rate from spring 2024 to autumn 2023.The move would be an attempt to nullify what is thought to be Ms Truss’s central appeal to the Conservative grassroots, who will choose the next leader and prime minister.But it would risk undermining Mr Sunak’s stance as the candidate who can be trusted with the nation’s money, in contrast to his rival’s “fairytale” economics as he puts it.A source in the Sunak camp said he does not expect to be able to cut personal taxes until autumn 2023 at the earliest – and that they would be unlikely to kick in until April 2024.RecommendedThat would fit with the timetable set out in March, at his spring statement, when the then-chancellor unveiled a pre-election sweetener for the poll expected in spring 2024 – the 1p cut to 19p.Mr Sunak said it would come in “from 2024”, the Treasury adding: “This will be delivered in a responsible and affordable way, while continuing to meet our fiscal rules.”The Sunak camp is now suggesting the test will be when roaring inflation has been tamed, not spending and borrowing rules – which could make the announcement of the cut possible late next year.Mr Sunak has admitted he is the outsider in the battle for No 10, despite winning the support of 137 Conservative MPs, a sizeable lead on the foreign secretary’s 113.A poll this week of Conservative members gave Ms Truss a healthy lead of 54 to 35 per cent over her rival, before hustings begin next week.Mr Sunak is also vulnerable to the anger of some Tory members that he helped trigger Boris Johnson’s departure – by resigning – while Ms Truss stood by him.And his reputation has not fully recovered from the controversy over his wife’s non-dom tax status, or the revelation he a US green card while chancellor.But Ms Truss’ tax plans – unfunded cuts of at least £30bn – are hugely controversial, a row fuelled by her claim that they would cut, rather than increase, inflation.Vowing to take on Treasury “orthodoxy” and the economic consensus, the race favourite insisted the package was “not a gamble” and would not drive up inflation already standing at 9.4 per cent.But economists are warning they would not push up prices and risks a return to 1970s-style inflation.RecommendedDr Jo Michell, associate professor of Economics at UWE Bristol, told The Independent: “The tax cuts she’s proposing are more likely to be inflationary so, on balance of probability, her comments are false.“It’s certainly a gamble – saying the plan has no risk [of increasing inflation] is ridiculous.” More

Conservative leadership candidate Liz Truss’ plan to bring in immediate tax cuts is likely to push up prices and risks a return to 1970s-style inflation, top economists have warned.The foreign secretary has pledged to bring in tax cuts of at least £30bn if she becomes prime minister, claiming on Thursday: “My tax cuts will decrease inflation.”Vowing to take on Treasury “orthodoxy” and the economic consensus, the new favourite in the Tory contest insisted that her plan to cut taxes was “not a gamble” and would not drive up soaring inflation even further.However, Dr Jo Michell, associate professor of Economics at UWE Bristol, told The Independent that Ms Truss was wrong to claim tax cuts would bring in inflation down.“The tax cuts she’s proposing are more likely to be inflationary, so on balance of probability her comments are false,” he said. “It’s certainly a gamble – saying the plan has no risk [of increasing inflation] is ridiculous.”Financial economist Frances Coppola said there was good chance Truss’ plan could “backfire” and make Britain’s economic situation worse. “These tax cuts are likely to be inflationary in the short-term,” she told The Independent.RecommendedThe analyst compared Truss’s tax-cutting policy resembled Tory prime minister Edward Heath’s as part of his “dash for growth” in the early 1970s.Coppola said the Health plan contributed to inflation spiralling out of control by the mid-1970s. “Liz Truss is using the exactly the same argument – that inflation will fix itself if we get the economy growing.”Truss has said rival Rishi Sunak had pushed Britain in the “wrong direction” on taxation, and has promised to reverse his National Insurance and corporation tax rises, as well as cutting green levies on energy bill.She admitted on BBC Radio 4 Today’s programme that her plan would cost at least £30bn a year. About if it would cost as much as £38bn, as some have estimated, Truss said: “I’d say that’s slightly high but it’s around that figure”.On her plan to cut taxes immediately and allow borrowing to increase, she said: “It’s not a gamble, it’s an economic reality that the higher taxes you have the more growth is choked off.”She also condemned the “orthodoxy” of the Treasury and the opinions of many leading economists had failed to deliver growth. “We need to do something different in order to get growth going, in order to put money in people’s pockets.”Asked to name leading economists who agreed with her, Truss named the right-wing Brexiteer Patrick Minford – who forecast in 2017 that a hard Brexit would boost Britain’s GDP by 6.8 per cent, or around £135bn a year.Dr Michell said he was “alarmed” by Truss pointing to Patrick Minford as an economic ally – describing the Brexiteer who forecast as 6.8 per cent GDP boost from the UK’s exit from the EU as an increasingly “fringe” figure.He also warned of a return to austerity if tax cuts go ahead. “The danger is that further down the line it’s used to cut public services. Using the public finances for short term tax giveaways doesn’t make any sense.”Nimesh Shah, chief executive of Blick Rothenberg, estimated this week that Ms Truss’ pledges could cost around £40bn – and warned such promises would “undoubtedly fuel” further inflation.And Citigroup’s chief UK economist, Ben Nabarr, said in a note earlier this week that Truss’s policy platform “poses the greatest risk from an economic perspective in our view – with an unseemly combination of pro-cyclical tax cuts and institutional disruption”.The widely-respected Institute for Fiscal Studies (IFS) think tank has also warned that tax cuts could push inflation “in the wrong direction”.In a new assessment of the tax polices set out by both Truss and Sunak, the IFS warned on Thursday that tax cuts funded by more borrowing “would inject additional demand into the economy and further increase inflationary pressures”.Robert Joyce, deputy director of the IFS, said that Truss was “proposing something quite different from Mr Sunak” – suggesting the offer of at least £30bn worth of tax annual cuts would inevitably mean some cuts in public spending.“They will mean higher borrowing or less public spending, or some combination,” the IFS expert said on her plans. “Whatever a chosen set of self-imposed fiscal rules might allow in the short term, in the end lower taxes do mean lower spending.”RecommendedSunak has warned against “fairytale” tax cut promises, telling Truss at the recent ITV debate that her plan push up debt was “socialist”. He added: “Borrowing your way out of inflation isn’t a plan, it’s a fairytale.”Despite the pressure to appeal to Tory members in the six-week contest ahead, he is reportedly keen to wait until at least autumn 2023 before cutting personal taxes to avoid fuelling inflation.Both the International Monetary Fund and the Organisation for Economic Co-operation and Development have warned that the UK runs a bigger risk of persistently high inflation than other similar economies. More

Labour is urging the next Tory leader to commit to sacking a Treasury minister who is paid multiple salaries from companies with links to a notorious tax haven. Richard Fuller, who was appointed in the dying days of Boris Johnson’s premiership, is paid £80,000 a year by the finance firms – which the opposition describes as a “shocking conflict of interest”The MP has a history of advocating for “light touch” financial regulations and “deregulation” for financial services companies like his employers.Yet in his new role as economic secretary to the Treasury, Mr Fuller is in charge of financial regulation for companies such as the ones he works for.To compound matters, one of his employers, Investcorp, has reportedly poured cash into spy technology in China, backing another company building surveillance systems capable of tracking oppressed Uyghur Muslims.RecommendedThe Independent has contacted Mr Fuller’s office, as well as the Treasury, for comment on the allegations, but has not received a response.The three companies paying Mr Fuller’s salaries, totalling £80,000, which are listed on parliament’s register of interests, are ultimately owned by Investcorp. They are based in the northeast of England but also incorporated in the Cayman Islands.The MP, who represents North East Bedfordshire, has also received £35,000 in political donations since 2010 from the co-CEO of Investcorp.Mr Fuller’s register of interests says he is paid £40,000 a year for four hours’ work a month as chairman of OpSec Security. As an advisory director of Investcorp Securities Ltd he is paid £20,000 a year for two hours’ work a month, and as a director of Impero Solutions Ltd he is also paid £20,000 a year for two hours’ work a month.Companies House data shows that their parent companies are based in the Cayman Islands, and that they are all owned by Investcorp. Mr Fuller worked at Investcorp from 2000 to 2007 before becoming an MP, where he set up their technology ventures business. James Murray, Labour’s shadow financial secretary to the Treasury, said: “Working people and businesses in Britain work hard and pay their taxes. It is beyond reproach for a Treasury minister to be benefiting from a company linked not only to tax avoidance but also to the Chinese state-backed abuse of Uyghur Muslims.“The government has serious questions to answer about why it ignored this shocking conflict of interest when putting Richard Fuller in charge of regulating financial services. Mr Fuller must urgently clarify whether he owns any stakes in offshore funds linked to Investcorp.”Mr Murray added: “The current chancellor – who has his own questionable links to tax havens – must show that he has at least a shred of integrity by sacking Richard Fuller now and carrying out a full investigation into these links. “If he does not do so, then all Tory leadership candidates must do the right thing and pledge now to remove Fuller immediately if they win.”Last week it was claimed that Nadhim Zahawi, the chancellor and Mr Fuller’s boss at the Treasury, had avoided millions of pounds in tax with an offshore trust. Those claims related to a company called Balshore Investments, a Gibraltar-based company held by a trust controlled by his parents. RecommendedMr Zahawi promised to publish his tax returns if he became prime minister, but was knocked out of the leadership race in the first round.Mr Zahawi’s predecessor in No.10, Rishi Sunak, who topped the Tory leadership race ballot yesterday, also faced questions about his and his family’s tax affairs – particularly relating to the non-dom status of his wife. More

Watch: Boris Johnson’s government wins confidence with 349 votesConservative leadership candidate Liz Truss’ plan to bring in immediate tax cuts is likely to push up prices and risks a return to 1970s-style inflation, top economists have warned.The foreign secretary has pledged to bring in tax cuts of at least £30bn if she becomes prime minister, claiming on Thursday: “My tax cuts will decrease inflation.”Dr Jo Michell, associate professor of Economics at UWE Bristol, told The Independent that Ms Truss was wrong to claim tax cuts would bring in inflation down.“The tax cuts she’s proposing are more likely to be inflationary, so on balance of probability her comments are false,” he said. “It’s certainly a gamble – saying the plan has no risk [of increasing inflation] is ridiculous.”Meanwhile, the former chancellor declared himself a Thatcherite. The pair tried to win over the support of local politicians today when they participated in the private hustings for the Conservative Councillors’ Association.RecommendedShow latest update

1658413780Northern Ireland Secretary declines to say whether he’s backing Truss or SunakNorthern Ireland Secretary Shailesh Vara has declined to say whether he is backing Rishi Sunak or Liz Truss to be the next leader of the Conservative Party.Speaking to media in Lisburn, Co Antrim, Mr Vara said he believes they are “both excellent candidates”.“Whoever is the ultimate winner will, I’m sure, serve the United Kingdom very well,” he said.“With both of them I have raised the issue of Northern Ireland and the importance that they place upon the people here and they have made it absolutely clear to me that Northern Ireland is uppermost there and they want to make sure that they get the Executive up and running and that we can move forward so that Northern Ireland, along with the rest of the United Kingdom, benefits from everything that is going in terms of economic development and prosperity.”Thomas Kingsley21 July 2022 15:291658412428Watch: Boris Johnson’s highs and lows as prime ministerBoris Johnson’s highs and lows as prime ministerThomas Kingsley21 July 2022 15:071658411350Liz Truss tax cuts policy ‘ridiculous’ and risks 1970s-style inflation, economists warnConservative leadership candidate Liz Truss’ plan to bring in immediate tax cuts is likely to push up prices and risks a return to 1970s-style inflation, top economists have warned.The foreign secretary has pledged to bring in tax cuts of at least £30bn if she becomes prime minister, claiming on Thursday: “My tax cuts will decrease inflation.”Vowing to take on Treasury “orthodoxy” and the economic consensus, the new favourite in the Tory contest insisted that her plan to cut taxes was “not a gamble” and would not drive up soaring inflation even further.However, Dr Jo Michell, associate professor of Economics at UWE Bristol, told The Independent that Ms Truss was wrong to claim tax cuts would bring in inflation down.Read more on this story from our political correspondent, Adam Forrest: More