Business Secretary Says UK Needs A "Looser Fiscal Approach" To Tackle Soaring Inflation
Kwasi Kwarteng has said putting up taxes “isn’t going to help people” and that the UK needs a “looser fiscal approach” to tackling rising inflation.
The business secretary, who is backing Liz Truss in the Conservative leadership race, said tax rises implemented under former chancellor Rishi Sunak were adding “insult to injury” amid the difficult economic climate.
The Bank of England delivered a stark economic warning on Thursday, claiming that the UK economy was due to fall into recession later this year as a result of poor GDP growth and high energy prices.
In a bid to tackle rising inflation, which it predicted could peak at a 42-year high of 13 per cent, the bank also announced it would be raising interest rates from 1.25 per cent to 1.75 per cent — the sixth consecutive rise in interest rates, and the largest increase since 1995.
“I think the problem we have is very simple. I think we've got inflation which is squeezing people's incomes, but we’ve also got a rising tax burden. That's why I'm supporting Liz Truss,” Kwarteng told Sky News.
“I've never understood why, if we're going to help people, how are we going to help people by putting up their taxes, especially when their daily shop, their costs are going up.”
Kwarteng said the Bank of England’s warning showed that “simply carrying on with our economic policy at the moment, is not going to cut it” and that the UK “can’t tax ourselves to growth”.
He insisted that he was “not blaming the tax rises” implemented by Rishi Sunak for the current economic crisis, but insisted that the current tax burden was putting pressure on people’s finances.
“Now to say to people, your real incomes are being squeezed and I'm going to put your taxes up – you're just adding insult to injury, you're not actually dealing with the problem,” the business secretary continued.
“The way to deal with the problem is to have a slightly looser fiscal approach. And that's what Rishi himself implied yesterday. He said he would help people.
“Now if you're going to help people and have an intervention, that is a looser approach than simply hiking up taxes to a 70-year high, which is where we are today.”
Kwarteng also defended the fact that Prime Minister Boris Johnson and Chancellor Nadhim Zahawi were both on holiday when the news of the recession was announced.
“[Zahawi] is completely on top of the situation. I was just speaking to him yesterday, in fact,” he told LBC.
“He's completely aware of what's going on and his officials and he are working very hard to see how best we can deal with this.”
Conservative leadership rivals Sunak and Truss clashed over their competing plans to deal with the forthcoming recession during a TV special on Sky News on Thursday evening.
Former Chancellor Sunak claimed that Truss’ “unfunded” tax cuts would pour "fuel on the fire" of inflation, but she responded that “bold” action could prevent a recession.
“We can change the outcome and we can make it more likely that the economy grows,” the foreign secretary said.
"But what's important is first of all, we need to help people struggling with the cost of living and I would immediately reverse the National Insurance increase."
"You simply can't tax your way to growth. I'm afraid that the taxes we have at the moment, a 70-year high, are likely to lead to a recession."
Sunak responded by warning that Truss’ plan would lead to higher inflation, and pledged to implement tax cuts over a longer period.
"We in the Conservative Party need to get real and fast, because the lights on the economy are flashing red and the root cause is inflation," he said.
Sunak added: "Now, I am worried that Liz Truss' plans will make the situation worse.”
"If we just put fuel on the fire this inflation spiral, all of us, all of you, will end up with higher mortgage rates, savings and pensions that are eaten away and misery for millions. I don't want that for you."
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