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UK tax cuts risk ‘unsustainable’ debt rise

British Prime Minister Liz Truss attends the 77th US General Assembly at the US headquarters in NEW YORK, NY, U.S., September 21, 2022. REUTERS/David ‘Dee’ Delgado

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LONDON, Sept 21 (Reuters) – Prime Minister Liz Truss’s plans to cut payroll taxes and reverse a well planned upsurge in corporation tax risk putting Britain’s national debt on an unsustainable upward path, the Institute for Fiscal Studies think tank said on Wednesday.

Truss promised the tax cuts, worth around 30 billion pounds per year, within her successful campaign for the Conservative Party leadership, plus a temporary subsidy for household energy bills that may cost around 100 billion pounds.

The IFS – widely treated in Britain as a non-partisan arbiter of government budget plans – said the permanent nature of the tax cuts made them harder to justify compared to the energy price cap, a reply to Russia’s invasion of Ukraine.

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“Reversing National Insurance Contributions and corporation tax rises would leave debt on an unsustainable path,” it said.

Finance minister Kwasi Kwarteng will lay out information on Truss’s plans on Friday, but won’t provide new economic forecasts from the government’s Office for Budget Responsibility until a complete budget later this season – a choice the IFS called “disappointing”.

Through the leadership contest, Truss said her main rival for the very best job, former finance minister Rishi Sunak, was threatening growth by raising taxes and bowing to “Treasury orthodoxy”.

The IFS said there is little guarantee that permanent tax cuts would create enough growth to cover themselves.

“There is absolutely no miracle cure, and setting plans underpinned by the theory that headline tax cuts will deliver a sustained boost to growth is really a gamble, at best,” it said.

Truss’s plans were more likely to result in a persistent budget deficit of around 3.5% of gross domestic product following the energy subsidies had ended well above its pre-financial crisis average of just one 1.9%, the IFS forecast.

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Reporting by David Milliken, Editing by Kylie MacLellan

Our Standards: The Thomson Reuters Trust Principles.

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