Trickle down economics fan

Trickle down economics fan September 22, 2022

A lot of certainty from Liz Truss in here. 

In an interview at the top of the Empire State Building on Tuesday, she told the BBC: “We do have to take difficult decisions to get our economy right. We have to look at our tax rates. So corporation tax needs to be competitive with other countries so that we can attract that investment.”

She had already signalled that further tax cuts, beyond the changes expected on Friday, could be on the cards. She told reporters on the plane to the US: “Lower taxes lead to economic growth, there is no doubt in my mind about that.”

But the evidence for same?

 

In a broadcast round on Tuesday, Truss admitted her tax-cutting plans will initially benefit the rich more than the rest of society, but doubled down on reversing a recent rise in national insurance would benefit top earners by about £1,800 a year, and the lowest earner by about £7.

“I don’t accept this argument that cutting taxes is somehow unfair,” she told Sky News. “What we know is people on higher incomes generally pay more tax so when you reduce taxes there is often a disproportionate benefit because those people are paying more taxes in the first place.

“We should be setting our tax policy on the basis of what is going to help our country become successful. What is going to deliver that economy that benefits everybody in our country. What I don’t accept is the idea that tax cuts for business don’t help people in general.”

Hmmm… people on higher incomes pay more tax because they make more money through those higher incomes. And that tax doesn’t go nowhere. It goes to state services and through various redistributive flows back into people’s hands to spend. 

Truss brushed aside concerns about the falling pound and general state of economy. “My belief is that Britain’s economic fundamentals are strong,” she said, rejecting claims that interest rates would rise as a result of her approach.

 

Good luck with that. 

Funny too, the old enterprise zone idea has been dragged out into the light. That is, low-tax, low regulation investment zones. They didn’t work too well in the past, but hey, that only means there needs to be more!

The new zones will eclipse the existing programme of up to 11 “freeports” initially proposed by Boris Johnson….

Ministers will herald the enterprise zones as a break with the priorities of Michael Gove, the former levelling-up secretary. Gove was chiefly focused on boosting investment in so-called left-behind areas. “The plans make Gove look like a socialist,” one government insider said.

 

 

I have to say, a Tory government that argues Gove looked like a socialist is a very disturbing government indeed. The response from various parties to this wheeze is sceptical at best. UK Trade Policy Observatory is quoted as saying:

 

“Studies of enterprise zones showed they generated fewer jobs than forecast and a very high proportion of them were displaced from elsewhere, so it is difficult to see how [investment zones] would increase total investment in the UK as a whole,” he said.

 

In some ways the paucity of this is what is most striking. Caps on bankers pay being lifted. A smattering of enterprise zones. That most laissez-faire of laissez-faire approaches to political economy of cutting taxes (and the borrowing – the borrowing, remember when the Tories bemoaned Labour borrowing in 2000 and asserted it was voters children’s children who would be paying? Apparently now all forgotten).  It’s simple stuff, and simplistic. An advanced economy isn’t though. Anything but.