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21 September 2022

Liz Truss and Joe Biden are at odds over trickle-down economics

The Prime Minister and the President will hold a bilateral meeting while in New York for the UN General Assembly.

By Rachel Wearmouth

Low-tax Liz Truss has left no doubt about the agenda she will pursue as Prime Minister: slashing corporation tax, cutting National Insurance, scattering the UK with low tax development zones, removing the bankers’ bonuses cap and now, according to a report in the Times, cutting stamp duty. 

Her radical tax-slashing government plans to review all taxes on struggling households and businesses amid the cost-of-living crisis.

“We want people to keep more of the money they earn, because we believe that freedom trumps instruction,” the Prime Minister will say at the UN General Assembly in New York on 21 September.

“We are reforming our economy to get Britain moving forward once again. The free world needs this economic strength and resilience to push back against authoritarian aggression and win this new era of strategic competition.”

The big question is, with her Chancellor, Kwasi Kwarteng preparing to make so many giveaways, who pays?

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Doubling down as a post-Brexit UK teeters on the brink of a recession is a huge economic gamble. Given the scale of borrowing required to fund her energy price freeze – thought to be in the region of £130bn – it is no wonder markets are nervous.

Truss’s government will borrow to fund tax cuts – something that her defeated rival for the leadership, Rishi Sunak, believed would lead to an inflation spiral.

Truss believes slashing taxes will ultimately benefit everyone in society and she has made clear her focus will not be on income redistribution.

[See also: Why Liz Truss would do well to listen to the IEA]

But if a spike in economic growth does not follow, the public purse will suffer, meaning fresh austerity and weakened public services rather than “strength and resilience”.

Britain has the second highest rate of income inequality, after the US, among the G7 countries, according to new data released this month.

Unlike Truss, Joe Biden – with whom the PM will hold a bilateral meeting on 21 September – seems prepared to recognise this. His Inflation Reduction Act will make large investments in healthcare while tackling climate change and raising taxes on large corporations. 

Time will tell whether his plan will work, but there is now an ideological divide at the heart of the special relationship.

Biden tweeted last night: “I am sick and tired of trickle-down economics – it has never worked. We’re building an economy from the bottom up and middle out.”

Also on the agenda at Biden and Truss’s meeting will be post-Brexit trade arrangements in Northern Ireland. The US President is expected to urge Truss to negotiate with the EU over the Northern Ireland protocol, showing Dublin has just as much clout as London in Joe Biden’s White House.

On the plane to New York, Truss admitted it could be years before a US-UK trade deal is struck, despite such a pact being promised by Brexiteers.

Downing Street could end up being a lonely place for Britain’s new Prime Minister if her gambles fail to pay off.

[See also: What to expect from Kwasi Kwarteng’s mini-Budget on Friday]

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