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Truss – whose “Trussonomics” political stance has been compared to that of his political idols Ronald Reagan and Margaret Thatcher – said he was willing to cut taxes at the high end of the economic spectrum in an effort to stimulate UK growth, in a strategy typically dubbed a “waterfall” economy.
But the approach, which comes as Britain faces the worst cost-of-living crisis in decades, has drawn criticism from both UK political opponents and Downing Street’s closest international ally: the US president.
Biden, in a tweet Tuesday, said he was “sick and tired of the cascading economy”, adding “it never worked.”
Downing Street said it was “ridiculous” to suggest the comment was directed at Truss, according to the FT. The White House did not immediately respond to CNBC’s request for comment.
It came a day before the couple formally met for the first time in New York on Wednesday, after which time Truss tweeted that “the United Kingdom and the United States are firm allies”.
What is expected in the mini-budget?
The UK growth-focused mini-budget, to be announced on Friday by new UK Finance Minister Kwasi Kwarteng, is expected to include plans to eliminate planned corporate tax hikes, the end of the cap on bankers’ bonuses and a potential cut in the duty stamp, the tax paid on the purchase of a home.
Kwarteng also confirmed early Thursday that the government will cancel a recent increase in taxes employees pay on earnings, known as national insurance.
Critics, including the British opposition Labor Party, have argued that such measures disproportionately benefit the wealthy. Higher income earners will receive greater relative savings from the tiered NI tax than lower income earners, for example, while retirees and benefit recipients will be exempt from the savings.
However, Truss said Tuesday he was willing to be unpopular if necessary to revive the UK economy.
“I don’t accept this argument that cutting taxes is somehow unfair,” he said News from heaven.
“What we do know is that people with higher incomes generally pay more taxes, so when you cut taxes there is often a disproportionate advantage because those people pay more taxes in the first place,” he added.
More details are also expected on a previously announced limit on energy bills for households and businesses, which were pushed higher after Russia’s war in Ukraine.
A “critical moment” for the British economy
The central bank rolled out its on Thursday seventh consecutive rate hike, raising the base rate by 0.5% to 2.25%. The pound rose marginally on the announcement, but remains at multi-year lows against the dollar.
Analysts said the announcement will mark a “critical moment” for the direction of the UK economy, with the government and central bank operating independently, seemingly pulling in opposite directions.
“The bank, which seeks to dampen consumer demand, and the government, which seeks to increase growth, could now pull in opposite directions,” David Bharier, head of research at the British Chambers of Commerce business group, said in a statement Thursday.
Questions have also been raised about how policies will be financed, with tax cuts expected to lead to more lending. Truss said the resulting growth will bring more revenue that will cover those financing costs.
“The need to increase future debt goes hand in hand with ongoing tightening measures undertaken by the central bank: this has the potential to continue to increase future borrowing costs,” Niall O’Sullivan, chief investment officer, multi-asset strategy, EMEA at Neuberger Berman, he said.
Matthew Ryan, head of market strategy at global financial services firm Ebury, has estimated loan costs to be £ 200 billion ($ 225 billion).
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div class=”InlineVideo-inlineThumbnailContainer”><img class=”InlineVideo-videoThumbnail” src=”https://image.cnbcfm.com/api/v1/image/107114029-16624697891662469785-25307448313-1080pnbcnews.jpg?v=1662469788&w=750&h=422&vtcrop=y” alt=”The UK economy is “sull’orlo di un precipizio”, afferma Nigel Farage”/>