Tax cuts get economists’ approval

LIZ TRUSS’S tax cutting plans have been backed by a group of prominent economists, The Daily Telegraph can reveal.

The Foreign Secretary has come under fire from Rishi Sunak over her plans to slash National Insurance and reverse planned rises in corporation tax – proposals the former chancellor has described as “fantasy” economics.

But, in a letter to The Telegraph, seven economists have offered their support for Ms Truss’s plans for “timely, targeted and fully affordable tax cuts”.

And the Adam Smith Institute, a free market think tank, said that pressing ahead with Mr Sunak’s plans for a corporation tax increase would lower business investment by 7.6 per cent and average household wages by £2,500.

The seven economists, led by Dr Graham Gudgin from the Centre For Business Research at Cambridge University, said tax cuts were necessary because they were putting “unbearable strain” on family finances. They wrote: “The policy solution necessitates a tighter monetary policy from the Bank of England to control inflation and a looser fiscal stance, focused on targeted tax cuts, to address weakening growth.

“Thus, timely, targeted and fully affordable tax cuts are needed.

“Given the nature of our inflation shock – driven by global supply-side pressures and previously lax monetary policy – targeted tax cuts will not be inflationary.

“The domestic economy is not overheating. They are affordable too. At the time of the Spring Statement there was fiscal space that was not used and since then higher inflation has boosted tax revenues.”

It comes after, at the weekend, three former members of Margaret Thatcher’s Cabinet said the Iron Lady would never have approved of Ms Truss’s promise to slash £30billion off taxes funded by borrowing.

Their criticisms were dismissed by Therese Coffey, Ms Truss’s campaign chief, who said they had not been in government for “a very long time”.

But Welsh Secretary Sir Robert Buckland, backing Mr Sunak, said his candidate wanted to emulate Thatcher’s “fiscal prudence”. In a swipe at the Foreign Secretary’s plans for tax cuts, popular with the Tory base, he said: “It’s good to have a straight-talking candidate who isn’t trying to be popular, but is trying to do the right thing.”

Other signatories of the letter include Graeme Leach, chief economist at Macronomics; Dr Gerard Lyons, senior fellow at Policy Exchange; and independent economist Julian Jessop.

The others are Douglas Mcwilliams, the executive deputy chairman at the Centre for Economic and Business Research; the senior private economic forecaster Harry Western; as well as

£2,500

Amount average household wages would be lowered under Rishi Sunak’s plans, according to the Adam Smith Institute

Shanker Singham, academic fellow at the Institute of Economic Affairs. Mr Singham advised Boris Johnson on leaving the EU.

They write: “There is a need for targeted tax cuts to happen immediately, while further fully affordable measures can be brought forward in a Budget, alongside other options.

“Tax cuts are necessary. The UK is on track for its highest tax burden in 70 years, placing an unbearable strain on households and undermining competitiveness.”

Separately, Dr Lyons, a former economic adviser to Mr Johnson, told Times Radio that interest rates “need to be higher”.

He added: “If you push taxes down, it doesn’t inevitably mean interest rates go up.”

He said rock-bottom interest rates had fuelled inflation and would have to rise.

Separately, the Adam Smith Institute backed Ms Truss’s proposal to ditch

Mr Sunak’s planned increase in corporation tax from 19 to 25 per cent, which he announced as chancellor.

The free-market think tank said reversing the planned rise and other changes would raise investment by almost 10 per cent and GDP by 3 per cent.

Daniel Pryor, head of research at the Adam Smith Institute, said: “It’s vital that the next prime minister goes for growth and boosts Britain’s bleak business investment numbers.

“But as this report shows, the coming corporation tax hike and the end of the super-deduction will hammer the economy, choke off investment and reduce the average household wage by £2,500.

“If the contenders for the Conservative party leadership are serious about getting Britain back on track, they should commit to cancelling the corporation tax increase and making full expensing of capital investment permanent.

“In the long-run, keeping corporation tax low largely pays for itself.”