The Truss economic plan – Marginal REVOLUTION

The measures come in addition to a big government spending plan to cap household and corporate energy bills this winter that could cost the U.K. government roughly £100 billion, equivalent to about $113 billion, over the next two years.

The goal is to spur growth in an economy facing weak growth and high inflation, partly brought on by an energy price shock from higher natural-gas prices from the war in Ukraine, as well as a U.S.-style labor shortage. Absent the government bailouts, economists warned that many Britons would be unable to pay their energy bills this coming winter and thousands of companies would go broke…

The government is also planning a deregulation drive, in particular in the finance sector, to try to bolster London’s role as a business hub.

Taken together, the Truss plan is a bold but risky gamble that the payoff from higher growth will more than offset the risks from a big expansion in the government’s deficit and debt at a time of high inflation and rising interest rates, which will increase the cost of servicing the debt and could shake investors’ confidence in the U.K. economy and its currency.

Here is more from the WSJ.  Elsewhere Ryan Bourne covers the tax changes in more detail:

• • the recent 1.25 percent employer and employee national insurance tax rises have been reversed;
  • the basic rate of income tax would be cut from 20 percent to 19 percent;
  • the highest 45 percent marginal income tax rate would be abolished entirely, making 40 percent the top official marginal rate band;
  • stamp duty (the property transactions tax) on all transactions up to home values of £250,000 and £425,000 for first-time buyers has been scrapped;
  • the planned increase in the corporate profits tax has been abandoned (so maintaining it at 19 percent);
  • full and immediate expensing in the corporate tax code for the first £1 million invested in plant and machinery would be made permanent;
  • new investment zones would be introduced, in which there would be a 100 percent first year enhanced capital allowance relief for plant and machinery and building and structures relief of 20 percent per year.

And on regulation:

The FT details the negative reaction from UK bond, equity, and currency markets.  Furman and Buiter are very negative, Summers too.  In my view, these are mostly good policies, but how will all that borrowing go over?  And is the Bank of England up to doing the appropriate offsets?  I will cover these policies as they unfold…