Liz Truss has vowed to stick to her tax-cutting plans, breaking her silence on the market tumult that followed her government’s fiscal policy announcement last Friday.
In a series of interviews on local radio stations, the British prime minister insisted she would not change course on the economy, saying lower taxes were vital to stave off a recession. But a sell-off in sterling and government bonds resumed as she spoke.
“We are cutting taxes across the board because we were facing the highest tax burden on Britain in 70 years, and that was causing a lack of economic growth,” Ms Truss told BBC Radio Tees.
She added that keeping taxes high “going into difficult economic times” was likely to lead to a recession. “My concern is, I want people to stay in jobs.”
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But her administration’s plans for £45 billion (€51 billion) of unfunded tax cuts and other fiscal measures have prompted a sharp sell-off in sterling and government bonds, forced banks to withdraw mortgage offers and led to censure by the International Monetary Fund.
On Wednesday, the Bank of England carried out an emergency £65 billion intervention in the gilt market to prevent a meltdown in the pensions sector.
In an interview on BBC Radio Nottingham, Ms Truss said it was “important the UK is on the front foot, we are pulling all the levers we can to drive economic growth”.
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One Tory MP who had publicly urged people to back the Truss government admitted on Thursday morning that the regional media round had not been a success: “She’s not the world’s greatest communicator,” he said.
The MP said the new government’s mistake had been to announce the tax cuts immediately rather than phasing them over the rest of the parliament. “I backed her tax cuts during the campaign in August but they never said they’d do almost all of them straight away.”
Another Tory MP who supported Ms Truss said after the BBC regional interviews: “It’s an utter sh*t show.” A Conservative peer said: “She was crap on the radio.”
The UK’s bond and currency markets remained under pressure after a broad rally on Thursday following the BoE’s intervention.
Sterling gave up the gains it had made on Wednesday after the Bank’s announcement, trading down 0.9 per cent at $1.079.
Ms Truss praised the Bank of England for its intervention on government debt, adding it “does a very, very good job on delivering financial stability”.
The prime minister received a hostile response in nearly all of the interviews. She was asked on BBC Radio Nottingham whether she was pursuing a “reverse Robin Hood” after cutting the top 45p rate of tax for higher earners. “That simply isn’t true,” she said.
She added that her government’s energy package – which will limit price rises for households and companies – was likely to reduce inflation by up to 5 per cent as well as increasing economic growth.
On BBC Radio Kent, Ms Truss was asked whether she would reverse the budget measures for listeners “who cannot sleep at night”. She responded: “I don’t accept the premise of the question. The action we’ve taken has been helping people with their fuel bills.”
She also insisted that the economic turbulence had been chiefly prompted by the war in Ukraine, not last Friday’s fiscal event. “It’s not just Britain facing difficulties, this is a global problem,” she said.
But in an interview on Thursday, Mark Carney, former governor of the Bank of England, tore into the government’s fiscal plans for exacerbating financial instability and working at cross-purposes with the central bank. Mr Carney rejected ministers’ claims that market turmoil was a global phenomenon, saying, “in the case of the last week, developments have centred around the UK”. – Copyright The Financial Times Limited 2022