Does Liz Truss have a plan to deal with the UK economic crisis? | Business | Economic and financial news from a German perspective | DW
Liz Truss’s journey to becoming the new leader of the Conservative Party – and therefore the new Prime Minister of the UK – has finally turned into a crowning achievement.
However, she won’t have much time to relish defeating Rishi Sunak as prime minister.
In the little over two years before Truss faces the British public in a general election, she faces the daunting task of redressing a moribund economy plagued by runaway inflation, a anemic growth and the lingering consequences of Brexit.
Inflation is expected to reach 13% this year and could exceed 20% next year if soaring energy prices do not subside. The runaway rate is contributing to a worsening cost of living crisis for millions of people across the country.
“The new prime minister is likely to find that the bulk of the run-up to the election will be spent on the cost of living crisis,” Andrew Goodwin, chief UK economist at Oxford Economics, told DW.
“Further, much larger tax transfers to households, and probably businesses, are needed, and speed is essential. If the cost of living crisis is not resolved, it will be difficult for the new Prime Minister to achieve its other goals and will make it very difficult to win the next election,” he said.
Tax or transfers
This crisis dominated the leadership campaign between Truss and Sunak. Truss presented herself as someone who would rather cut taxes than make transfers to citizens.
Leading up to election will be all about cost of living crisis, experts say
“The way I would do things would be in a conservative way to reduce the tax burden, not hand out handouts,” she said last month.
His tax cut plans, which would cost the government more than £30bn (€34.68bn, $34.53bn), include a proposal to cut green levies on energy bills , which are designed to finance renewable energy projects. She also wants to scrap a planned corporate tax hike and cancel other planned tax hikes, including a payroll tax.
She says those plans will be revealed in an “emergency budget”, which she will announce before the end of September.
Truss argues his tax cuts will boost Britain’s growth, but opponents say they could still fuel inflation. They were widely criticized, including by several prominent members of his party.
Sunak says Truss’ plans would be “irresponsible and complacent” given the UK’s current level of public debt. The interest rate on UK debt recently saw its biggest monthly rise in almost 40 years.
Goodwin isn’t sure Truss’ plans were primarily designed to come into office and isn’t ruling out a change down the line. “It’s hard to gauge how well she plays with her audience,” he said.
Truss openly questioned the policies of major financial institutions in the UK, such as the Treasury (the UK’s Treasury) and the Bank of England.
Truss has pledged to challenge institutions such as the Bank of England
“The Treasury has some fantastic, very, very smart people working but there’s definitely an orthodoxy there,” she told the FinancialTimes recently. “The focus is on… what I describe as an abacus economy of making sure taxes and spending add up, but not enough of a focus on economic growth.”
She says she will “adopt” this orthodoxy although she has played down reports that she would seek to split the Treasury into two separate departments, one dealing with public finance and the other dealing more specifically with the economy.
She also spoke of the need for the Prime Minister and the Chancellor of the Exchequer (the UK’s finance minister) to work more closely together – a reference to the frayed relationship that existed between her predecessor Boris Johnson and Sunak, when he was Chancellor before resigning in protest at Johnson’s leadership.
Truss should appoint Kwasi Kwarteng as chancellor. A strong Brexit supporter, Kwarteng is the current Business Secretary and is very close to Truss both politically and personally.
Brexit: The One Who Must Not Be Named
Both Truss and Sunak are Brexit supporters and, like many members of Britain’s political establishment, neither has shown much willingness to publicly acknowledge the difficulties that leaving the EU has created for the UK. British economy over the past two years.
In 2016, Truss argued for a hold vote. “I support retention as I believe it is in Britain’s economic interests,” she wrote months before the vote.
Truss says she is now convinced that Brexit is a positive thing for Britain. One area on which his post-Brexit European policies will be immediately focused as Prime Minister is the Northern Ireland Protocol.
A trade row with the EU could arise as Truss takes a hard line on the Northern Ireland protocol
In his previous role as UK Foreign Secretary, Truss was a driving force behind the highly controversial Northern Ireland Protocol Bill, a national law that would see Britain overturn the protocol agreed with the EU, which would constitute a violation of international law.
Truss remains firmly in favor of the bill and has hinted it could also trigger what is known as Article 16 – part of the EU-UK Brexit deal which allows parties to withdraw from the provisions of the protocol.
Either move would lead to a strong response from the EU and could lead to the bloc imposing punitive tariffs on UK exports.
‘Truss’ behavior as Foreign Secretary and reliance on the support of ardent Brexiteer MPs to move to a membership vote is a concern as to how she might try to resolve the impasse over Northern Ireland protocol,” Goodwin said.
“Logic would suggest that a prime minister would want to try to avoid risking a trade war with his biggest trading partner at a time when the economy is struggling badly and households are facing a cost of living crisis. But Truss may think she has no choice but to avoid the pragmatic approach and maintain an aggressive line.”
For Truss, this is another risky element in a plan to tackle an economic crisis as severe as any its recent predecessors have faced. The stakes are high and the expectations are low.
Edited by: Uwe Hessler
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