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Britain's Truss tries to reassure economic plan

Britain’s Truss tries to reassure economic plan

  • The Prime Minister defends the economic plan, saying it is correct
  • He also tries to reassure the audience
  • Kwarteng says he made a decision about the higher tax rate

BIRMINGHAM, England (October 2) (Reuters) – British Prime Minister Liz Truss tried to reassure her party and the public on Sunday that she should have done more to “pave the way” for an economic plan that sent the pound to record lows. Government borrowing costs rose.

On the first day of her ruling conservative party’s annual conference, Truss, who has been in office for less than a month, adopted a softer tone by saying she would support the public through a difficult winter and beyond.

She defended her “growth plan,” a package of tax cuts that investors and many economists have criticized for setting aside billions of pounds for spending while providing few details of how it will be paid for in the short term.

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This is the right direction, Truss said, noting that critics did not realize the depth of Britain’s problems and that it should have done more to explain them – an argument that market traders and investors dismissed as a reason for the fall in sterling and increased borrowing costs last week.

But while some conservative lawmakers fear it will hurt their prospects in elections scheduled for 2024, she has not denied that the plan will require spending cuts on public services, and has refused to commit to increasing welfare benefits in line with inflation while endorsing a tax cut for the richest.

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“I understand their concerns about what happened this week,” she told the BBC in Birmingham, central England.

“I support the package we announced, and I’m sticking with the fact that we announced it quickly because we had to move, but I accept that we should have paved the ground better.”

Jake Perry, chairman of the Conservative Party, noted that markets may have overreacted, while acknowledging that he is not an economist. “Let’s see where the markets are in six months,” he told Sky News.

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Truss took office on September 6, but Queen Elizabeth died two days later, so the early days of the new prime minister’s term were largely occupied by a period of national mourning, when politics was almost at a standstill.

She launched her plan two weeks after taking office, as her team felt she signaled her plans during a leadership campaign against rival Rishi Sunak, who opposed the immediate tax cuts.

But the scale of the unfunded cuts terrified the markets. After a major sell-off, the pound has since recovered following the intervention of the Bank of England, the Bank of England, but government borrowing costs remain significantly higher.

Investors say the government will have to work hard to restore confidence, and the Bank of England’s emergency bond-buying round is set to last only until October 14, leaving Truss with little time.

Away from the market reaction, Truss’ economic plan has also sparked concern in the Conservative Party, in particular about scrapping the highest level of income tax at 45%.

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Some in the party fear being seen as the “bad side,” cutting taxes on the rich while doing little to improve the lives of the most vulnerable.

In what could be a sign of things to come, Business Secretary Jacob Rees-Mogg was harassed by dozens of protesters chanting “You are not welcome here” as he arrived at the convention center. The police should have accompanied him.

A former minister, Michael Gove, who has long been at the heart of the government, also denied the party’s plans to scrap the highest tax rate, hinting he might vote against it, and Andy Street, Birmingham’s Conservative Mayor, said he would not. Make that policy.

“It will be very difficult to argue that it is acceptable to reduce welfare payments when we lower taxes on the rich,” Gove said at an event at the conference.

Truss argued the move was part of simplifying the tax system, but added that her finance minister, Kwasi Kwarting, had made the decision on the higher tax.

When asked if her cabinet had been informed of senior ministers in advance, Truss said: “No, we haven’t, that was a decision the chancellor made.”

She also noted that politicians have spent a lot of time worrying about how the public will receive their policies, saying they are focused on driving growth. Truss has often said that she is not afraid to make unpopular decisions.

But she struggled when pressed to answer whether eliminating some taxes would have to be paid for with cuts to public services. Rather than denying it, she said she wanted the best possible services, which offer taxpayers value for money.

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“I will make sure that we get value for money for taxpayers, but I am very, very committed to making sure we have excellent public services on the front lines.”

In-depth reading:

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(Reporting by Elizabeth Piper and Andrew McCaskill) Additional reporting by Hannah McKay. Editing by Gareth Jones, Frances Kerry and Jean Harvey

Our criteria: Thomson Reuters Trust Principles.