Economic Crisis in UK
Context:
- The U.K. economy has veered dangerously toward free fall in recent weeks as Ms. Truss and Mr. Kwarteng fumbled their way through defining a clear economic strategy, while persisting with their stated goal of spurring economic growth in the post-Brexit scenario.
Background:
- The newly elected Prime Minister Liz Truss has been facing the challenge of handling the vulnerable position of the Britain’s economy.
- Her Cabinet was facing an impending energy crisis as she took office, which was being exacerbated in part by the unpredictability brought on by the interruptions in the energy supply caused by Russia’s conflict in Ukraine.
- While she seemed to act swiftly in early September to reassure British families who were having trouble paying their gas bills that there would be an energy price guarantee and ensuing cost savings, her larger plan to cut income tax for the top earners in the U.K. and to abandon a corporate tax hike was the one that was under fire.
Implications:
- The “fantasy island economics” of cutting revenue sources without appropriately covering the large fiscal hole that such a give-away would produce is what Mr. Sunak has referred to as the main criticism of the Truss Cabinet.
- The recent proposals have also been criticised as having the wrong priority in light of the more pressing issue of runaway inflationary trends brought on by fluctuations in the price of commodities globally, turmoil in the energy market, and supply-side constraints resulting from a post-Brexit economic structure.
- The first measure proposed by the Truss-Kwarteng team to jump-start the British economy was a proposal to eliminate the 45% top rate of income tax for those with incomes of £1,50,000 or more.
- A second policy in a similar vein was the proposal to scrap a planned increase in corporate tax from 19% to 25% starting next April. Together, the two measures amounted to £45 billion in unfunded tax cuts.
Source The Hindu
