Responding to new UK Prime Minister Liz Truss’ stated intention to cut taxes ODI’s Managing Director Rathin Roy said:
“Britain can do better than tax cuts and will have to if it wants to overcome the imminent cost of living crisis.
Cutting taxes in the face of a whopping rise in energy bills is, for working families, just taking away money from public services and giving it to energy companies. For the rich, it removes any mild restraint on luxury consumption, fuelling inflation.
Tax cuts are a simplistic and superficially attractive idea, but not a meaningful economic solution. They just postpone the repayment problem to future taxpayers, meaning less money tomorrow without any investment today.
To stand any chance of overcoming the immediate UK cost-of-living crisis and achieve the growth-focused economy she says she wants Prime Minister Truss will need to adopt a multifaceted economic approach as follows:
- Cap energy prices at April 2022 levels at median units consumed and 50 per cent more above that
- Introduce an energy profits windfall tax
- Use long-term borrowing to finance any shortfall
It would be imprudent to cut taxes and at the same time increase borrowing to fund consumption, as PM Truss appears likely to propose. In fact the net result would be to impede investment in jobs and skills.
A windfall tax on energy companies is the obvious solution and this would reduce the need to borrow.
Market-friendly economics recognises that it is sensible to intervene when markets fail and companies profit from the consequences of war, as is currently the case.
The UK urgently needs to tackle the imminent economic challenge and keep children warm and free from hunger this coming winter. New UK PM Liz Truss would do well to make this her focus and her measure of success."