Friday, August 5, 2022

How Liz Truss and Rishi Sunak’s economic policies could impact the recession

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With the UK at an economic crossroads, here are four scenarios of what could happen under any Tory leader candidate

With the Bank of England forecasting a protracted recession from the end of this year, which candidate will lead the country out of the economic storm quicker and less painfully?

The outcome of the Conservative leadership contest isn’t just whether Liz Truss or Rishi Sunak becomes the next prime minister – it will determine the course Britain takes over the next few years.

Ms Truss immediately pledged huge tax cuts to get ordinary households through the worst cost of living in decades.

But Mr Sunak says this will push inflation further, promising instead to stifle rising prices and only cut taxes if this is brought under control.

Politicians and economists are at odds over who is right — and with so many external factors, including the war in Ukraine and global gas and food price instability, no one really knows. But what is clear is that the UK is at a crossroads.

Here are the four scenarios of what could happen to the economy depending on who wins next month.

Prime Minister Truss introduces an emergency budget that immediately reverses the social security hike introduced in April, halts the proposed corporate tax hike and suspends the green tax on energy bills for 12 months. This brings immediate relief to families and businesses as inflation continues to rise and the recession hits. Corporate tax cuts boost economic growth and shorten the recession. Towards the end of the year and beginning of 2023, the situation in Ukraine is stabilizing, and energy and food prices are falling.

Mrs. Truss introduces an emergency budget with tax cuts, as above, and there are short-term reliefs for families and businesses. This extra household purchasing power allows more money to flow into the economy, but this pushes inflation to 13 percent by the end of the year and up to 15 percent in 2023. Your government is increasing borrowing to pay for the tax cuts. put further pressure on interest rates. The war in Ukraine continues to put pressure on gas and food prices, making the situation worse. High inflation and recession lead to stagflation. The Bank of England is being forced to raise interest rates even more to control inflation, causing homeowners to struggle to pay their mortgages.

Prime Minister Sunak is going ahead with the £400 payments to households to support energy bills in October, as already planned by the current government, but is sticking to his “solid money” policy of postponing tax cuts until inflation is brought under control is. Its proposed corporate tax hike will be implemented in April 2023. The Bank of England continues to hike interest rates to curb inflation. This tightening, together with the Sunak government’s fiscal discipline, will eventually lead to a fall in inflation in early 2023, which will not reach 15 percent levels. The UK is emerging from recession earlier and Mr Sunak is going ahead with his planned 1p income tax cut in 2024. At the same time, the war in Ukraine is easing and global energy and food costs are also helping UK prices fall.

Mr Sunak is sticking to his plan not to cut taxes. He is going ahead with the planned £400 energy bill delivery in October, which will help families in some ways. However, inflation continues to climb above 13 percent despite the former Chancellor’s pledge to bring it under control amid ongoing global instability. The corporate tax hike, which Mr. Sunak says he wants to push, is choking off any growth and the recession is deepening. Soaring energy and food costs, along with the April 2022 Social Security hike and corporate tax hike, put pressure on families and businesses as the 2023 recession hits. Businesses are having to lay off staff to cut costs, and unemployment is rising.

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