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  • Writer's pictureEdgar Rayo

Finanze® Daily Digest - 21/09/2022

The Brief: The PM has made three bold economic policy announcements this morning as she faced the media in New York: cutting national insurance, scrapping banker bonus cap and reversing a corporate tax hike. Ahead of the scheduled fiscal policy report on Friday, Truss believes that getting the affluent a respite from high taxes will boost the UK's economy as the government also prepares to outline its supply-side reforms this week.

Why It Matters: Truss admitted that her decisions are “unpopular” but these tax cuts are necessary to make the country competitive again. There’s no surprise here considering that her promises during the election campaign were centred on pursuing growth through fiscal measures.

Finanze® Foresights: Tax cuts, especially for the wealthy, are thought to spur private economic activity, which contributes to robust growth. The higher net income causes savings to rise in the short run. And because the rich can save more than the poor, such wealth is channelled into the banking sector, which can then lend more to households. Of course, such an assumption isn’t always welcomed by those against fiscal measures that favour the rich. The scrap on banker bonuses cap will certainly be met with opposition by the public. What they need to realise, however, is that policies that motivate citizens to work more so they can earn more will likely translate to growth in domestic consumption and investment under favourable circumstances.

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