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The Bad Alternative to Trussonomics

from The Wall Street Journal,

Britain is now a high tax, high inflation, low growth economy.

New U.K. Prime Minister Liz Truss campaigned on pro-growth economic policies, but her Conservative Party has refused to follow. New Chancellor Jeremy Hunt on Monday unveiled the party’s alternative to Trussonomics, and the crowd who demanded this may be sorry they asked.

Mr. Hunt gave the critics what they wanted by reversing almost all of the tax cuts in the “mini-budget” former Chancellor Kwasi Kwarteng announced on Sept. 23. A cut in the personal tax rate to 19% from 20% for middle incomes has been suspended indefinitely. This and reversals on dividend tax cuts and alcohol duty reductions come on top of the previous U-turn on the top personal income-tax rate, which is staying at 45% rather than falling to 40%, and plans to proceed with an increase in the corporate tax rate to 25% from 19% next April. What remains of Trussonomics is a 2.5-percentage-point cut in the payroll tax, and a break on the stamp duty, a transaction tax on home sales.

Mr. Hunt’s announcement worked in the narrow sense of inducing a positive market reaction. Yields on government bonds fell and the pound gained about 1.5% against the dollar, to just above $1.14. This is the kind of “stability” Ms. Truss’s critics said they crave. It’s also an illusion. Interest rates inevitably must rise in coming months as the Bank of England under Governor Andrew Bailey pursues its tardy and ineffective fight against inflation at 40-year highs.

Now, however, as households feel the bite of inflation and rising mortgage rates and pension funds and other investors flee gilts for higher returns, they’ll discover the British economy’s prospects for economic growth have been dented by the collapse of Ms. Truss’s plan. Britain now is a high tax, high inflation, low productivity, low growth economy again.

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