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"Trussonomics wasn't entirely bonkers after all" - experts share their views

Journalist: Newspage Newsdesk

ended 13. August 2023

With Ireland forecasting a budget surplus of just under £9bn this year, the equivalent of 3.5% of national income, free UK news agency, Newspage, sought the views of financial services experts and business owners on whether Liz Truss’s headline policy of ultra-low corporation tax rates, like Ireland, could have benefitted the UK, where corporation tax is now 25% — if the execution had been better.

“Looking back, it is possible that the baby was thrown out with the bathwater, and that Trussonomics wasn't entirely bonkers after all", said Daniel Wiltshire at Bradford-on-Avon-based Wiltshire Wealth, adding: “Corporation tax certainly does feel too high if the economy is ever going to return to meaningful growth, and with personal tax thresholds remaining frozen, we're arguably now on the wrong side of the Laffer Curve.”

Samuel Mather-Holgate of Swindon-based advisory firm, Mather & Murray Financial, was broadly in agreement: "Truss’s headline policy of reducing corporation tax to incentivise big business to relocate, or just to stay, in the UK was fundamentally good. Ireland has shown that this generates more tax income that you can choose to spend for the social good. However, she tried to do too much too soon and didn’t have the economic forecasts to back up her plans. Truss needed to implement one key policy, rather than setting all tax rates on fire."

David Robinson, co-founder and wealth manager at London-based Wildcat Law, agreed that the problem was poor execution, but also noted the impact of Brexit: “Growth was, and remains, the only way out of this mess. Truss had the right idea but her execution was abysmal. She mixed a number of actually quite sound policies with others that were frankly not only unpalatable but also undermined the viable ones. Lowering tax for the wealthiest in society whilst effectively raising it for the poorest was never going to fly. However, comparing us to Ireland on the corporation tax front ignores that big Brexit elephant in the room. Ireland has received a significant boost from Brexit, which the lower corporation tax rates merely supply the icing to.”

Meanwhile, for Philip Dragoumis, owner of London-based wealth manager, Thera Wealth Management, “the reason the Trussonomics experiment failed miserably was not its obsession with low taxes as such. It was the combination of low taxes, high spending and a complete disregard for any fiscal orthodoxy and even interest in ever balancing the books. Thatcher, who Liz Truss admired, was primarily a fiscal conservative and would have turned in her grave. If Liz Truss was still in power, mortgage rates would likely be at 10% and we could even have seen a situation where the Government was unable to borrow money and meet its obligations, which would have resorted to asking for a bailout from the IMF.”

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11 responses from the Newspage community

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Daniel Wiltshire
Actuary & IFA at Wiltshire Wealth
Looking back, it is possible that the baby was thrown out with the bathwater, and that Trussonomics wasn't entirely bonkers after all. Corporation tax certainly does feel too high if the economy is ever going to return to meaningful growth, and with personal tax thresholds remaining frozen, we're arguably now on the wrong side of the Laffer Curve. As ever in politics, it is, in part, down to communication. Trussonomics was sold very badly to the general public and the markets. Perhaps a more credible Prime Minister, like Rishi Sunak, could have made a better job of it. It's a sign of how dire things have become that people are getting all nostalgic about the Liz Truss era, if you can call such a brief period an era. It's easy to forget that we were hours away from a pensions LDI 'death spiral' that would have crashed the economy had it not been for the Bank of England's swift intervention, which is possibly the only good thing Andrew Bailey can put his name to.
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Philip Dragoumis
Director and Owner at Thera Wealth Management
The reason the Trussonomics experiment failed miserably was not its obsession with low taxes as such. It was the combination of low taxes, high spending and a complete disregard for any fiscal orthodoxy and even interest in ever balancing the books. Thatcher, who Liz Truss admired, was primarily a fiscal conservative and would have turned in her grave. If Liz Truss was still in power mortgage rates would likely be at 10% and we could even have seen a situation where the government was unable to borrow money and meet its obligations, which would have resulted in asking for a bailout from the IMF. Having said all that, comparing the UK with Ireland, Luxembourg or the Channel Islands is not helpful. These are small economies. There are no examples of tax havens the size of the UK, and the UK’s growth problems are not because it has high taxation. There are so many other issues to fix first, not least poor social services, housing, and a lack of infrastructure outside London.
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David Robinson
Co-Founder at Wildcat Law
Growth was, and remains, the only way out of this mess. Truss had the right idea but her execution was abysmal. She mixed a number of actually quite sound policies with others that were frankly not only unpalatable but also undermined the viable ones. Lowering tax for the wealthiest in society whilst effectively raising it for the poorest was never going to fly. However, comparing us to Ireland on the corporation tax front ignores that big Brexit elephant in the room. Ireland has received a significant boost from Brexit, which the lower corporation tax rates merely supply the icing to.
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Dawn Maria France
Editor-in-Chief at Yorkshire Women's Life Magazine
Truss planned to grow the economy by cutting taxes to attract new companies and encourage business growth. However, she and Kwasi Kwarteng did far too much too soon and spooked the markets. Drastic wholesale tax cuts and her unfunded spending spree plan alarmed everyone. A slower, more measured approach, focusing on cutting corporation tax first, would have been an attractive proposition. In short, I don’t think the markets got it wrong. The Conservative party had no alternative but to oust Truss, given the market’s response, the drastic fall in the value of the pound, public outcry and rising costs. However, Sunak's government decided to increase taxes, with corporation tax now at a shocking 25%. This in the worst cost-of-living crisis with people squeezed by wage freezes and high utilities, energy and food costs. Truss had the right idea but the wrong execution. Low corporation tax would attract global businesses to Britain, increasing employment and public spending power.
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Samuel Mather-Holgate
Independent Financial Adviser at Mather and Murray Financial
Truss’s headline policy of reducing corporation tax to incentivise big business to relocate, or just to stay, in the UK was fundamentally good. Ireland has shown that this generates more tax income that you can choose to spend for the social good. However, she tried to do too much too soon and didn’t have the economic forecasts to back up her plans. Truss needed to implement one key policy, rather than setting all tax rates on fire. The conservatives were right to get rid, as she was no statesperson. But they shouldn’t have turned 180 degrees on all of her policies. We are seeing the results of higher business taxes as we are among the worst performing developed economies. Brexit will have also contributed. It’s clear the incumbents plan to fiddle on all economic issues while London burns, so UK plc must hope for an imaginative, forward-thinking, lower tax new government when that comes. This will give confidence to financial markets and bring down mortgage rates sustainably.
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Stephen Perkins
Managing Director at Yellow Brick Mortgages
Truss' policies and lack of detail behind her plans are what threw the UK economy into the hole it now finds itself in. Now the Bank of England has decided to continually pour cement into the hole to make it harder for us to get out. Whilst lower corporation taxes would have helped the economy for sure, it was all the other policies and the lack of consulting and number-crunching on them before announcing them that caused so much damage.
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Mike Staton
Director at Staton Mortgages
Truss and co tried to change the world overnight, and sent the UK economy into what is starting to feel like an eternal night. Some policies were fantastic, but some were unable to be backed up. There is a question of whether Truss was liked by the Conservatives, as she was rapidly removed when the muck hit the fan. But it was no worse than what we've seen with Sunak's lowest point, with nobody was calling for his head. This country needs a complete shake-up, there's not one candidate from one party that I would trust to run my business when I was on holiday, let alone a country. Until we have fit and trustworthy candidates running for Prime Minister, I can't see things changing much as I can't see any change in decent leadership soon.
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Justin Moy
Managing Director at EHF Mortgages
This was either an excellent plan delivered poorly, or a poor plan excellently delivered. As a country we have spent a huge amount on peripheral items that have failed to deliver, not needed, or a 5-minute wonder — strangely the very thing the Bank of England want us to stop doing by increasing rates and tightening belts accordingly. Mortgage rates were already increasing before the Truss budget, they just increased quicker afterwards. The lack of endorsement from the Office for Budget Responsibility was probably the biggest issue, and whether a little bit of tinkering in advance could have improved how the markets reacted. Hindsight politics are always correct, but it would have been interesting to see what would have happened if rates did stay higher, for a bit longer.
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Kundan Bhaduri
Property Developer and Portfolio Landlord at The Kushman Group
Truss's dismissal of 'Treasury orthodoxy' was a signal of her intention to throw caution to the wind and pursue policies without proper consideration of long-term implications. This was evident from the outset as she summarily sacked the Treasury's permanent secretary, an act that only further destabilised the already precarious economic environment. Her delusion to embark on a £45 billion tax cut spree, combined with even more unfunded energy subsidies, displayed a profound lack of understanding of responsible economic management and was certainly not Conservative by any stretch of the imagination. One of the glaring missteps in Truss's economic plan was her vague reliance on a 'growth plan' driven by supply-side reforms. This so-called plan lacked the necessary detail to inspire confidence in the markets or even within her own team, as was evidenced by Kwasi Kwarteng's reluctance to discuss it with the OBR. So, in summary, Trussonomics was wrong. It was never the answer to anything.
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Graham Cox
Director at Bridging Hub
Truss, despite her terrible communication skills and robotic personality was on the right lines. Sunak and Hunt seem to think they can tax their way out of this economic blackhole. Only productivity gains and GDP growth will do that. Unfortunately, Truss' execution was terrible, particularly the help for additional rates taxpayers.
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Rhys Schofield
Brand Director at Peak Mortgages and Protection
Ireland also didn't throw £30 billion at a failed test and trace and all the rest that seems to have gone to the governments chums. We could learn a thing or two about not electing people who are clearly unfit for office such as adopting their proportional representation and single transferrable voting system. All to often in the UK at election time we're just faced with the dilemma of voting for whoever is likeliest to beat the candidate we hate the most. That's no recipe for successfully running a country.