As UK PM contender Liz Truss gains support for her populist economic measures, her rival Rishi Sunak felt compelled to announce his decision to slash taxes by 20% by the end of the decade.
Truss gained the support of chancellor to the exchequer Nadhim Zahawi, who said she would slash taxes on day one of her appointment. She also was backed by Simon Clarke who criticised Sunak saying that households across the cannot afford to wait for seven years, referring to Sunak’s plan.
“Liz will cut taxes in seven weeks, not seven years … People are facing the biggest cost of living crisis in decades and the tax burden is at its highest level in 70 years,” Clarke was quoted as saying by the Guardian.
A report by the Guardian said Rishi Sunak faced ‘internal criticism from backers for pushing his narrative of restraint’ against the tax-cutting ambitions of Liz Truss.
Rishi Sunak said that his rival should tread with caution with her vision and take care that those visions should not involve any ‘difficult trade offs’. “Remember that if something sounds good to be true – then it probably is,” Sunak was quoted as saying by the Guardian.
Sunak said he would cut the basic income tax rate to 16% by the time the next parliament ends its session. He claimed that it will be the largest income tax cut in three decades.
The announcement from Rishi Sunak comes at a time when ballots have been handed over to Tory party members for voting. They can wait until September 5 deadline but UK-based news agencies predict the party members will start voting soon after they receive the ballots.
If opinion polls are to be believed, Liz Truss has gained an upper hand with many Tory workers favouring her to replace her boss Boris Johnson.
However, sceptics highlighted that ‘Trussonomics’ could end up hurting the UK more. Writing for the Independent, Sean O’ Grady said in an opinion piece that reckless cutting of taxes initiated by Liz Truss once she is voted to power will have ‘dire consequences’.
“Thatcher was a balanced-budget, sound money right-winger, as Rishi Sunak is now,” Grady wrote.
The piece also says that Truss’ plans of increasing investment, entrepreneurship and productivity will take years to feed into the economy.
This would be happening while the UK economy’s growing rate of inflation is also inflating the cost base which renders firms uncompetitive and if it gets embedded in the labour market, it would take tougher measures to wipe out.
It says the effect of Truss’ cuts would be cancelled out for the UK public as they will face more rapid rise in prices and cost of living, only to be increased by the depreciating pound.
The Bank of England will have to raise up rates to take the excess spending power brought forth by possible tax cuts introduced by Truss, if she is appointed prime minister.
There was also a speculation that there might be a ‘mini-housing crash’ caused by hike in mortgage, business borrowing costs and credit card bills caused by the boost to demand, that rose due to the tax cuts.
(with the Independent and the Guardian)