UK Tax Cuts the Right Medicine for Productivity: Economist

British Prime Minister Liz Truss leaves Westminster Hall after the Presentation of Addresses by both Houses of Parliament in Westminster Hall at the Houses of Parliament, London, on Sept. 12, 2022. (Markus Schreiber - WPA Pool/Getty Images)

As UK Prime Minister Liz Truss’ tax cuts come under fire from financial institutions and media outlets, one Australian economist says it is a step in the right direction, but more needs to be done to curb spending.

The Truss government is backing tax cuts and reductions to stamp duty (a form of property tax) to spur economic activity. However, in response to the move, financial institutions like the Bank of England and the International Monetary Fund have urged Truss and Kwasi Kwarteng, the chancellor of the exchequer, to reverse or delay the move.

“Given elevated inflation pressures in many countries, including the UK, we do not recommend large and untargeted fiscal packages at this juncture, as it is important that fiscal policy does not work at cross purposes to monetary policy,” a spokesperson of IMF said.

Media outlets responded with less nuance and directly criticised Prime Minister Truss saying “trickle down economics”, or “Trussonomics” was bound to fail.

However, John Humphreys, chief economist of the Australian Taxpayers Alliance, has backed the move saying the Truss government is right to focus on lower taxes as part of a “sustainable productivity agenda.”

“It’s also good to see them addressing the over-regulation of the British economy. This is all good microeconomic policy that will lead to higher wages, more jobs, and lower prices,” he told The Epoch Times in an email.

“The media critics are right to worry about large budget deficits and excessive borrowing. But they immediately assume that the only solution is to increase tax, but the better solution is for the Truss government to look for ways to cut wasteful spending.”

The Truss government will also be borrowing to finance a £100 billion package to cover part of the cost of energy bills for families amid soaring prices.

Humphreys also said the term “trickle-down economics”—normally attributed to former U.S. President Ronald Reagan’s time in office—is used to denigrate free markets and capitalism.

“The term ’trickle down economics’ is meaningless and only ever used as a pejorative by ideological leftists when creating a strawman argument against capitalism,” he said. “The issue at play is the importance of microeconomic reform to decrease market distortions and improve market competition. That can be achieved by reducing distortionary taxes and/or regulations.”