Wpa Pool | Getty Images LONDON — The British government is set to announce sweeping tax cuts for businesses and the wealthy on Friday in a controversial mini-budget that shows the lengths new Prime Minister Liz Truss is willing to go to overhaul the UK’s economic policy. even when it provokes political outrage. . Truss – whose ‘Trussonomics’ policy has been likened to that of her political idols Ronald Reagan and Margaret Thatcher – has said she is keen to cut taxes at the top of the economic spectrum in a bid to boost UK growth, in a strategy commonly called “trickle-down” economics. But the approach, which comes as Britain faces its worst cost-of-living crisis in decades, has drawn criticism from both UK political rivals and Downing Street’s closest international ally, the US president. Biden, in a tweet on Tuesday, said he was “sick and tired of the financial crisis,” adding that it “never worked.” Downing Street said it was “ridiculous” to suggest the comment was aimed at Truss, according to the FT. The White House did not immediately respond to CNBC’s request for comment. It came a day before the pair officially met for the first time in New York on Wednesday, after which Truss tweeted that “the UK and the US are staunch allies”.

What is expected in the mini budget?

The UK’s growth-focused mini-budget, to be announced on Friday by the UK’s new finance minister Kwasi Kwarteng, is expected to include plans to scrap planned corporation tax rises, end the bonus cap on bankers and a possible stamp duty reduction. tax, the tax paid on housing purchases. Kwarteng also confirmed in advance on Thursday that the government will reverse a recent increase in taxes paid by workers on earnings, known as National Insurance. I don’t buy this argument that the tax cut is somehow unfair. Liz Truss prime minister of the united kingdom Critics, including Britain’s opposition Labor Party, have argued that such measures disproportionately benefit the wealthy. People on higher incomes will get greater relative savings from the NI scaled contribution than people on lower incomes, for example, while pensioners and those on benefits will be exempt from the saving. But Truss said on Tuesday she was willing to be unpopular if necessary to jump-start the UK economy. “I don’t buy that argument that the tax cut is somehow unfair,” he told Sky News.

“What we know is that people with higher incomes generally pay more taxes, so when you cut taxes there’s often a disproportionate benefit because those people pay more taxes to begin with,” he added. More details are also expected on the previously announced cap on energy bills for households and businesses, which have risen since Russia’s war in Ukraine.

A ‘critical moment’ for the UK economy

On Thursday, the central bank implemented its seventh consecutive rate hike, raising its key rate by 0.5% to 2.25%. Sterling rose marginally on the announcement but remains at multi-decade lows against the dollar. Analysts said the announcement would mark a “critical moment” for the direction of the UK economy, with the government and central bank, which operate independently, seemingly heading in opposite directions. “The bank, which is looking to reduce consumer demand, and the government, which is looking to boost growth, could now move in opposite directions,” David Bharier, head of research at business group British Chambers of Commerce, said in a note on Thursday. Commerce. Questions have also been raised about how the policies will be financed, with tax cuts expected to lead to higher borrowing. Truss argued that the resulting growth would generate more revenue to cover those borrowing costs. “The need to increase future borrowing comes alongside continued central bank tightening – this has the potential to continue to increase future borrowing costs,” Niall O’Sullivan, head of investment, multi-asset strategies, EMEA at Neuberger said Berman. Matthew Ryan, head of market strategy at global financial services firm Ebury, estimated this borrowing cost at around £200 billion ($225 billion). “With all said and done, we estimate that the government’s spending package could exceed 200 billion pounds over the next two years, undermining existing plans for fiscal consolidation,” he told CNBC via email. Ryan noted that the government’s fiscal measures could “significantly reduce the likelihood of a deep and prolonged UK recession”, but added that risks remained of higher inflation over the medium term and a rise in its government deficit and net debt United Kingdom. The Bank of England said on Thursday that it is possible that the UK is already in recession.