One of Liz Truss’s ministers has said her government’s approach can in “no way” be described as “trickle-down economics”, despite the prime minister urging world leaders to join the UK in introducing far-reaching tax cuts.
Gillian Keegan, a Foreign Office minister, said the £100bn-plus package of support for households and businesses on energy bills showed that this was not the government’s philosophy.
Her comments come after Joe Biden, the US president, poured scorn on trickle-down economics – the idea that cutting taxes for the rich and businesses to encourage growth would ultimately trickle down to benefit the whole population through jobs and investment.
At the UN general assembly, where world leaders are gathering in New York, Biden said he was “sick and tired” of the approach, which he claimed had never worked.
Truss and her chancellor, Kwasi Kwarteng, are embarking on a “pro-growth” agenda prioritising tax cuts and deregulation. She told reporters on the plane to the US: “Lower taxes lead to economic growth, there is no doubt in my mind about that.”
Asked whether Truss is promoting the trickle-down theory, Keegan told BBC Breakfast: “That wasn’t actually a message, we don’t believe, which is based on our economy … You cannot say what we’ve done is trickle-down economics. You know, we’ve just put a massive package in place, which the chancellor will outline the cost of that and how we’re going to deal with that.
“But it is massive, the package we put in place to make sure that we support people at this time. So if you look at the definition of trickle-down economics, that definitely does not fit it.”
She added: “There’s no way you could describe our approach as trickle-down.”
Keegan was also pressed about how abolishing the cap on bankers’ bonuses would help people struggling to pay their bills, and argued that it would “help everybody to be pro-growth and pro-business”.
“Of course, the packages that we have there are just exactly for those situations that you have described – people who are concerned, people who are, you know, looking at the rising cost and thinking how are they going to manage,” she said.
“That’s why we’ve put this considerable package in place already to freeze bills, and there’s also additional support that was already in place beyond that as well for certain groups.”
But Labour’s Jonathan Reynolds, the shadow business secretary, hit out at the lifting of the cap on bankers’ bonuses.
He told Sky News: “The idea that in itself lifting the cap on bankers’ bonuses will grow the economy when it will not have any impact on 99.9% of people in this country and, crucially, will undermine the big fight, which is against inflation – because how will the government say to public sector workers or people in the private sector, ‘We don’t want to get into a 1970s wage spiral, limit your own claims – oh, but by the way, we’re lifting the cap on bankers’ bonuses.’ I find that incoherent.”
Reynolds said he was not filled with confidence that the government understood what was needed to help people.
“Getting rid of the cap on bankers’ bonuses or ripping up people’s employment rights – that is not the way to grow this economy for the benefit of everyone. It’s not the way to grow it at all,” he said.
The Truss and Kwarteng economic programme will be set out on Friday in a mini-budget, but they are refusing to request independent forecasts for how their tax cuts will affect the public finances.
In her latest break from Treasury orthodoxy, Truss vowed on Tuesday to review all tax rates to help struggling households and businesses through the cost of living crisis.
The prime minister’s remarks pave the way for a radical overhaul of the system that could include looking again at income tax brackets and come amid reports she is planning a cut to stamp duty as part of the mini-budget on Friday.