Liz Truss has vowed to review all tax rates to help struggling households and businesses through the cost of living crisis, in her latest break from Treasury orthodoxy.
The prime minister’s remarks, on her first foreign trip to the US, pave the way for a radical overhaul of the system that could include looking again at income tax brackets.
In an interview at the top of the Empire State Building on Tuesday, she told the BBC: “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.”
Truss had signalled overnight that further tax cuts could be on the way as she strives to boost economic growth in the face of the biggest economic storm the UK has faced in a generation.
She told reporters on the plane to the US that the “number one thing” she wanted to deliver was economic growth, adding: “Lower taxes lead to economic growth, there is no doubt in my mind about that.”
The prime minister embraced a Reagan-style “trickle-down” approach to the economy throughout the Conservative leadership contest, arguing it was wrong to view all economic policy through the “lens of redistribution”.
However, it puts her on a collision course with Joe Biden, who she will meet for bilateral talks on Wednesday. The US president tweeted: “I am sick and tired of trickle-down economics. It has never worked. We’re building an economy from the bottom up and middle out.”
In a broadcast round on Tuesday, the prime minister defended her plan to cut national insurance, which has prompted criticism as it benefits the highest earners 250 times more than the poorest, admitting it was of greater value to the rich.
She told Sky News: “I don’t accept this argument that cutting taxes is somehow unfair. 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.”
Truss also confirmed she would be reversing the increase in national insurance and axing the planned corporation tax rise in a mini-budget on Friday, which may have to bend the fiscal rules on reducing debt.
Some Tory MPs believe that the chancellor, Kwasi Kwarteng, could bring forward by a year the pledge made by his predecessor Rishi Sunak to cut income tax by 1% from 2024.
Business groups are expecting changes to business rates and cuts to VAT to help with the energy crisis, as well as a longer-term review of these taxes. Kwarteng is also expected to announce that the cap on bankers’ bonuses will be scrapped.
Truss told Sky News she was prepared to be an unpopular prime minister to bring in measures she believed would help the economy. “Yes, yes I am,” she said. “What is important to me is that we grow the British economy.”
She brushed aside concerns about the falling pound and the state of the economy. “My belief is that Britain’s economic fundamentals are strong,” she told the BBC. “We have relatively low debt compared with the rest of the G7.”
She added: “What I’m about is getting those economic fundamentals right and what the chancellor will be outlining on Friday is his approach showing that we are fiscally responsible, we’re going to carry out our policies in a fiscally responsible way. And we are going to help make the United Kingdom more competitive and more successful.”
