Economy

Britain’s Truss refuses to rule out welfare cuts to fund economic plan

Britain’s Truss refuses to rule out welfare cuts to fund economic plan

Written by Kylie McClellan and Sarah Young

LONDON (Reuters) – British Prime Minister Liz Truss has refused to rule out cutting benefits payments at less than hyperinflation to help fund her tax cuts, potentially fueling the next political rebellion against her economic plans.

Truss and her finance minister Kwasi Koarting are racing to decide how to pay out more than 40 billion pounds ($46 billion) in tax cuts announced last month, sparking turmoil in financial markets as they did not say how they would pay them.

The government has already had to backtrack on its plan to scrap the highest rate of income tax to appease Tory MPs who have seen it as a gift to the wealthy during the cost of living crisis.

Late on Monday, Kwarteng also agreed to submit the publication of the government’s full debt reduction plan, along with the outlook for economic growth and public finances. Truss noted that the plan could include restrictions on increasing welfare benefits.

Asked whether interest rates would rise in line with inflation, which came in at 9.9% in August, Truss told the BBC: “We will have to make decisions about how to reduce debt as a percentage of GDP over the medium term.”

“We have to look at these issues in the round. We have to take financial responsibility.”

Truss — who was elected prime minister by party members but not the wider public — is seeking to pull the economy out of a decade of stagnant growth with an 1980s-style plan to cut taxes and regulation, much of it funded by massive government borrowing.

But it does so at one of the most difficult times for the economy, as the government is forced to spend tens of billions of pounds to support energy bills, and consumers rein in spending ahead of what is expected to be a difficult winter.

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Investors were panicked by the government’s plan, hitting the value of British assets so much that the Bank of England had to step in to prop up the markets.

Damien Green, a former senior minister in Theresa May’s government and part of the centrist faction of the Conservative Party, has indicated he would oppose any efforts to increase welfare in line with average incomes rather than inflation.

Asked by the BBC whether the government could win a parliamentary vote on the move, he said: “Probably not. I think there will be many of my colleagues who believe that when you get to spending cuts, benefit payments are not the answer. To do that.”

House of Commons speaker Penny Mordaunt said it made sense to keep welfare payments in line with inflation. “That’s what I’ve voted for before, as have many of my colleagues,” she told Radio Times.

Markets have stabilized since the Bank of England’s move last week. Investors also expressed satisfaction with the government’s decisions not to abolish the highest tax rate and to bring forward the publication of its next fiscal plan from November 23.

The British government’s borrowing costs fell again in early trading on Tuesday but remained higher than before Kwarteng’s announcement of the mini-budget on September 23 regarding maturities not covered by the BoE’s emergency plan to buy long-term bonds.

Mel Stride, chair of Parliament’s Treasury Committee, welcomed the move to provide a full budget detail announcement. He said it would help if they were published before the upcoming Bank of England interest rate announcement on November 3.

(dollar = 0.8782 pounds)

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