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 a scheduled rise in corporation tax – proposals the former Chancellor has described as “fantasy” economics.
But, in a letter to The Telegraph, seven economists have now 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 three former members of Margaret Thatcher’s Cabinet at the weekend 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 Robert Buckland, who is 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, which are 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 on the letter include Graeme Leach, chief economist at Macronomics; Dr Gerard Lyons, senior fellow at Policy Exchange; and independent economist Julian Jessop.
The rest comprise Douglas McWilliams, executive deputy chairman at the Centre for Economic and Business Research; senior private economic forecaster Harry Western; and Shanker Singham, academic fellow at the Institute of Economic Affairs.
Mr Singham advised Boris Johnson on leaving the EU, when he became known as the “Brexiteers’ brain”.
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 seventy years, placing an unbearable strain on households and undermining competitiveness.”