Truss tax cut plans would be inflationary, say economists

The £30bn tax-slashing plans of Liz Truss have been savaged by economists, who are warning they will fuel inflation and risk a return to austerity while breaking Treasury rules.

- ROB MERRICK, ADAM FORREST

The Tory leadership race favourite was dragged into a damaging row about the credibility of her strategy after she argued it would tame soaring inflation – turning economic orthodoxy on its head.

One economics professor told The Independent the claim was “ridiculous”, while the respected Institute for Fiscal Studies (IFS) went further, also highlighting the danger for public services and spending rules. The row comes as Rishi Sunak rejected bringing forward his 1p income tax cut – announced for spring 2024 – to woo Tory members away from Ms Truss and underline his “fiscal responsibility” credentials.

The IFS concluded Ms Truss’s proposals would “likely result in the current fiscal rules being broken”, requiring borrowing for day-to-day spending and leaving debt still rising at the next election. The think tank warned of a “deterioration in the quality” of public services if, as she has suggested, Ms Truss puts tax cuts ahead of protecting services against rising inflation in her emergency autumn budget.

The damning verdict came as the foreign secretary appeared to be coasting to victory in the contest, securing a yawning 24point lead over her rival Mr Sunak in a poll of Tory members. On the campaign trail in Peterborough, Ms Truss doubled down on her plans, rejecting the IFS warning that she would break fiscal rules and insisting her tax cuts were “affordable”.