UNITED KINGDOM: On Sunday, British Prime Minister Liz Truss attempted to comfort her party and the general public by admitting that she should have done more to “lay the groundwork” for an economic strategy that caused the pound to drop to record lows and government borrowing costs to surge.
Truss, who had been in office for less than a month, adopted a softer tone on the first day of the annual conference of her party, the Conservatives, by promising to help the populace through the challenging winter and beyond.
She defended her “growth plan,” a combination of tax-cutting policies that investors and many economists have criticised for proposing billions of dollars in spending with little information on how it would be paid for shortly.
Truss asserted that it was a step in the right direction, arguing that her detractors did not understand the scope of Britain’s problems and that she should have done more to explain them.
Market participants and investors have rejected this claim as the cause of the pound’s decline and the rise in borrowing costs last week.
She refused to promise to raise welfare benefits in line with inflation while endorsing a tax cut for the wealthiest, which some conservative legislators fear will hurt their chances in an election due in 2024. Nevertheless, she did not dispute that the plan would require spending cuts for public services.
She told the BBC in the central English city of Birmingham, “I understand their anxieties about what has transpired this week.”
“I do support the package we revealed, and I support the fact that we did it swiftly because we needed to move, but I do accept that we should have prepared the foundation better,” she added.
Jake Berry, the leader of the Conservative Party, acknowledged he was not an economist but believed the markets may have overreacted. So, he said to Sky News, “Let’s see where the markets are in six months.”
Queen Elizabeth passed only two days after Truss took office. Therefore, the opening days of the new Prime Minister’s term were mostly consumed by the time of national grief, when politics was all but put on hold.
Her staff believed she had given away her ideas during a leadership battle against competitor Rishi Sunak, who had argued against immediate tax cuts, and she unveiled her plan two weeks after becoming a power.
However, the size of the unfunded cuts alarmed the markets. The British pound suffered a significant sell-off before recovering after intervention from the Bank of England, but borrowing costs for the government are still much higher.
Investors believe the government will need to put in a lot of effort to regain investor trust, and Truss won’t have much time because the BoE’s emergency round of bond purchases is only scheduled to last until October 14.
Truss’ economic proposal alarmed the Conservative Party in addition to the market, particularly the elimination of the top 45% income tax rate.
Some members of the party worry that by lowering taxes on the wealthy while doing little to help the most vulnerable, they run the risk of being labelled “the nasty party.”
Former Minister Michael Gove, who served in the government for a long time, also criticised the party’s proposals to eliminate the top tax rate and suggested he might vote against them. Andy Street, the Conservative mayor of Birmingham, also stated that he would not have adopted that policy.
When we are lowering taxes on the wealthiest people, Gove said at a conference event, “It is going to be very, very difficult to argue that slashing welfare payments is okay.”
While adding that her Finance minister, Kwasi Kwarteng, chose the highest tax, Truss claimed the move was a component of the tax system’s simplification.
When questioned about whether eliminating some taxes would necessitate reducing public services, she had trouble responding. Instead of disputing this, she stated that she wanted the best services that provided taxpayers with value for their money.
“I’ll make sure the taxpayers receive value for their money, but I’m very, very devoted to making sure we have great front-line public services,” she said.