Truss rejects windfall tax, but borrowing to rise
Liz Truss categorically ruled out windfall taxes to help ease energy bills, as the Chancellor told City leaders that borrowing will have to rise to pay for a new package of support.
On Thursday the new Prime Minister will announce a Covid-style bailout for families and businesses, potentially costing £150 billion – double the £69 billion furlough scheme – accompanied by a further £30bn of tax cuts to reward hard work and incentivise growth.
She will freeze energy bills at about £2,500 for up to two years, lift the ban on fracking and give the go-ahead for as many as 130 licences for oil and gas drilling in the North Sea. However, fracking in Scotland requires licences to be granted by the Scottish Government and it does not intend to issue any.
It is understood the UK government has been in talks with energy providers to cap the wholesale price of gas for households and businesses.
The Prime Minister believes the price cap will rein in inflation and allow the Bank of England to take a less aggressive approach to interest rates.
However, the level of borrowing continues to put pressure on the pound which sank to $1.1410, its its lowest level against the dollar since 1985. The dollar has strengthened significantly this year because the US is the only western economy that is largely self-sufficient in gas.
Ms Truss, addressing her first Prime Minister’s Questions on Wednesday, responded to Labour leader Sir Keir Starmer’s call for higher tax on oil and gas companies by saying it was not the right way to encourage growth.
“This country will not be able to tax its way to growth”, she said as Sir Keir accused Ms Truss of continuing a line of Prime Ministers who prefer to tax ordinary working people rather than the oil barons who are sitting on billions of profits.
Ahead of the new PM’s statement on tackling the energy crisis, he said she was the fourth Tory PM in five years, but “the story remains the same”, adding: “There is nothing new about the Tory fantasy of trickle-down economics. Can’t she see there’s nothing new about a Tory PM who, when asked who pays, says, ‘It’s you, the working people of Britain’?”
Ms Truss said there was nothing new about a Labour leader calling for more tax rises – the “same old tax and spend” message, she said.
She told MPs she was “on the side of people who work hard and do the right thing” and confirmed that she will reverse a rise in national insurance and keep corporation tax low.
Responding to similar questions from Ian Blackford, the SNP’s Westminster leader, on how her energy bailout will be financed, she said: “No, it won’t be paid for by a windfall tax”.
Mr Blackford asked if oil and gas producers will “pay their fair share from excess profits”.
Ms Truss said Mr Blackford does not want oil and gas extraction from the North Sea but “on the other hand, he wants them to pay taxes”.
She said she wanted to see more oil and gas produced from the North Sea and more nuclear power, both opposed by the SNP.
Ahead of PMQs, the new Chancellor Kwasi Kwarteng told City chiefs that short-term UK borrowing must increase to pay for a £100bn+ energy package, but that “fiscal discipline” will soon return.
The new chancellor said in a meeting with financial services executives that the government is “committed to taking decisive action to help the British people now”, but that it will pursue an “unashamedly pro-growth agenda” that will involve radical economic reforms.
Speaking after the meeting, Mr Kwarteng said: “We face extraordinary economic challenges in the coming weeks and months and I know that families and businesses across the UK are worried.
“The Prime Minister and I are committed to taking decisive action to help the British people now, while pursuing an unashamedly pro-growth agenda.
“We need to be decisive and do things differently. That means relentlessly focusing on how we unlock business investment and grow the size of the British economy, rather than how we redistribute what’s left.
“With a strong and resilient economy, we deliver more jobs, higher wages, and raised living standards – all while reducing our debt-to-GDP ratio in a fiscally sustainable way.”
Due to the scale of the gas crisis, the government’s first priority will be to support families and businesses in the immediate term.
The Chancellor was clear this will mean necessary higher borrowing in the short-term whilst ensuring monetary stability and fiscal discipline over the medium term. He committed to ensuring the economy grows faster than our debts and keeping debt as a proportion of our economy on a downward path.
Mr Kwarteng also reiterated his full support for the independence of the Bank of England and its mission to control inflation.
He said he recognised that the rate of growth has been too low and committed to a radical supply side agenda to deliver lasting economic growth. This will mean creating the right conditions for business investment and innovation, reducing burdensome regulation and taxes, which will in turn create jobs, wealth and drive economic growth.
The Chancellor reiterated his aim to get to 2.5% trend growth, delivering a stronger economy and a Britain that works for everyone.