Sep 22, 2022
Britain pursues 'trickle-down economics' despite scorn from Biden. And the stakes are sky-high
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British Prime Minister Liz Truss and U.S. President Joe Biden formally met for the first time at the United Nations General Assembly in New York City, following clashes in economic policy between the two leaders.Wpa Pool | Getty Images
LONDON — The British government is set to announce sweeping tax cuts for businesses and the wealthy Friday, in a controversial mini-budget showcasing the lengths to which new Prime Minister Liz Truss is willing to go to overhaul U.K. economic policy even as it draws political ire.
Truss — whose "Trussonomics" policy stance has been likened to that of her political idols Ronald Reagan and Margaret Thatcher — has said she is willing to slash taxes at the top end of the economic spectrum in a bid to boost U.K. growth, in a strategy typically dubbed "trickle-down" economics.
But the approach, which comes as Britain faces its worst cost-of-living crisis in decades, has attracted criticism from both U.K. political opponents and Downing Street's hereto closest international ally — the U.S. president.
Biden, in a tweet Tuesday, said he was "sick and tired of trickle-down economics," adding "it has never worked."
Downing Street said it was "ludicrous" to suggest the comment was aimed at Truss, according to the FT. The White House did not immediately respond to CNBC's request for comment.
It came a day before the pair formally met for the first time in New York Wednesday, after which Truss tweeted that "the U.K. and U.S. are steadfast allies."What is expected in the mini-budget?
The U.K.'s growth-focused, mini-budget, which will be announced Friday by the U.K.'s new Finance Minister Kwasi Kwarteng, is expected to include plans to scrap planned corporation tax hikes, an end to the cap on bankers bonuses and a potential cut to stamp duty, the tax paid on house purchases.
Kwarteng also confirmed ahead of time Thursday that the government will reverse a recent hike in the taxes employees pay on earnings, known as National Insurance.I don't accept this argument that cutting taxes is somehow unfair.Liz TrussU.K. prime minister
Critics, including Britain's opposition Labour party, have argued that such measures disproportionately benefit the wealthy. Higher earners will receive greater relative savings from the tiered NI levy than lower earners, for instance, while pensioners and those on benefits will be exempt from the savings.
Still, Truss said Tuesday she was willing to be unpopular if needed to kick-start the U.K. economy.
"I don't accept this argument that cutting taxes is somehow unfair," she told Sky News.
"What we know is people on higher incomes generally pay more tax so when you reduce taxes there is often a disproportionate benefit because those people are paying more taxes in the first place," she added.
More detail is also expected on a previously announced cap on energy bills for households and businesses, which have been pushed higher following Russia's war in Ukraine.A 'critical moment' for U.K. economy
Friday's statement comes as the prime minister — less than three weeks into the job — seeks to kick-start an ailing U.K. economy, which is currently beset with the highest level of inflation and weakest growth prospects among G-7 nations.
The Bank of England, meanwhile, is steadfast in raising interest rates in an effort to slow growth and tackle high inflation, which hit 9.9% in August.watch nowVIDEO1:3501:35UK to cap domestic energy prices, end fracking banSquawk Box
On Thursday, the central bank implemented its seventh consecutive rate hike, increasing its base rate by 0.5% to 2.25%. Sterling rose marginally on the announcement but remains at multidecade lows against the dollar.
Analysts have said that the announcement will mark a "critical moment" for the direction of the U.K. economy, with both the government and the central bank, which operate independently, seemingly pulling in opposite directions.
"The bank, looking to dampen consumer demand, and government, looking to increase growth, could now be pulling in opposite directions," David Bharier, head of research at business group the British Chambers of Commerce, said in a note Thursday.
Questions have also been raised over how the policies will be funded, with tax cuts expected to lead to higher borrowing. Truss has argued that resultant growth will bring in more revenue which will cover those borrowing costs.
"The need to increase future borrowing coming alongside the ongoing tightening measures being undertaken by the central bank – this has the potential to continue to increase future borrowing costs," Niall O'Sullivan, chief investment officer, multi-asset strategies, EMEA at Neuberger Berman, said.
Matthew Ryan, head of market strategy at global financial services firm Ebury, put those borrowing costs at an estimated £200 billion ($225 billion).watch nowVIDEO3:5003:50The U.K. economy is 'on the edge of a precipice,' says Nigel FarageSquawk Box
"With everything said and done, we estimate that the government's spending package may well exceed £200 billion over the next two years, laying waste to the existing plans for fiscal consolidation," he told CNBC via email.
Ryan noted that the government's fiscal measures could "significantly lessen the possibility of a deep and prolonged UK recession," but added that risks remain in terms of elevated inflation over the medium term and increases to the U.K.'s public deficit and net debt levels.
The Bank of England said Thursday that is was possible that the U.K. was already in a recession.TVWATCH LIVEWATCH IN THE APPUP NEXT | ETListen
News Source: CNBC
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Analysis: Candidate gaffes erode House GOP’s strong position to win majority
Some bumbling House Republican candidates are not helping their party’s cause to win a House majority on Nov. 8.
House Republicans are otherwise well positioned to claim a majority in the midterm elections. Democratic President Joe Biden’s approval ratings are persistently low. Four-decade high inflation continues to pinch consumers, and the Federal Reserve’s consistent interest rate hikes are jacking up credit fees, the cost of home mortgages, and a range of other expenses for the public.
The House math also works in the House Republicans’ favor. The party needs to net only five seats in the 435-member chamber to win its first majority since the 2018 midterm elections, in which GOP candidates were swept under in large part by former President Donald Trump’s enduring unpopularity. The party out of power in the White House and Congress almost always picks up seats in midterm elections. (Democrats hold the White House, the House of Representatives, and the Senate.)
But all of that only matters if Republican candidates can take advantage of these circumstances and win in the fall. That’s a prospect that, in many cases, is far from sure due to GOP hopefuls' frequent self-inflicted campaign trail wounds.
The situation is most acute in Ohio’s 9th Congressional District, based in the Toledo area and northwestern Ohio. It’s one of 15 new House districts in Ohio drawn by state Republicans and, in this case, is meant to dislodge Democratic Rep. Marcy Kaptur from office.
The Republican nominee, Trump-endorsed MAGA activist J.R. Majewski, lied about his resume, claiming that he had been deployed to Afghanistan, the Associated Press reported. The stories noted that public records indicated Majewski, an Air Force veteran back in 2002, completed a six-month stint helping to load planes at an air base in the Persian Gulf nation of Qatar.
Within a day of the Majewski revelations, the House Republicans’ campaign arm, the National Republican Congressional Committee, had cut the candidate loose. The campaign outfit dropped a nearly $1 million ad buy it had booked on his behalf. The action was an admission in all but words that Republicans were effectively walking away from a seat that had been seen from the start of the 2022 campaign cycle as a top Democratic target.
Kaptur was first elected to the House in 1982 and is now the longest-ever tenured female lawmaker in either chamber of Congress. Voters in the incoming 9th District in 2020 would have backed Trump over Biden 50.6% to 47.7%. For Kaptur, that’s a huge drop from the seat she currently holds, also the 9th District, in Ohio’s northern tier, which is along the Michigan state line and shares a maritime border with Ontario, Canada, via Lake Erie. There, Biden would have crushed Trump, 58.8% to 39.7%.
To be sure, House Republicans are in the driver’s seat in their quest to win the majority, less than seven weeks out from Election Day. After all, per the Cook Political Report, Republicans only need to win six of the 31 House seats the election handicapper deems toss-ups in order to nab a majority.
According to that analysis, at least 212 House seats are likely to lean Republican, with about 192 seats leaning Democratic. This means Republicans would need to win fewer than one in six of the remaining House seats.
The updated numbers come as the Republicans’ projected seat lead in the House has shrunk in recent months, falling from an estimated 230 seats in July to just 226 at the end of August, according to an analysis from CBS News. This shift in projections is likely due to a number of reasons, including the Supreme Court’s decision to overturn Roe v. Wade, which has helped Democrats motivate their voter base.
Meanwhile, a Fox News analysis this week found Republicans the favorite to take control of the House. The network predicted House Republicans would end up with a 13-seat House majority, holding 231 seats to the Democrats’ 204.
The outlet also noted that House Democrats have a chance to hold on to power. And the reasons stem in considerable part from the weakness of GOP candidates in swing districts. Majewski in Ohio, it seems, is hardly an outlier for Republican problem candidates.
To the northwest, the Republican nominee in Michigan’s Grand Rapids and Muskegon-area 3rd District, John Gibbs, is on the defensive over college-era remarks on female suffrage.
Gibbs, while attending Stanford University in 2000 and 2001, argued women should not vote or work outside the home, as reported by CNN. Gibbs at the time challenged several of what he called "commonly held notions" about gender roles and inequalities in the United States.
"Having more women in the workplace does not benefit men, it only strains them. In the post-feminist workplace, men must bend over backwards to make sure that they do not inadvertently offend any woman who might happen to hear a joke or comment uttered in humor and harmlessness," Gibbs wrote.
Now as a congressional candidate more than two decades later, the revelation spurred a torrent of negative stories this week about Gibbs’s candidacy. Gibbs was already in a tough fall race after beating freshman Rep. Peter Meijer in the Republican primary. Attorney Hillary Scholten is the Democratic nominee in a district moving increasingly toward her party. In 2020, the 3rd District would have voted for Biden over Trump 53.3% to 44.8%.
Then there’s the Republican nominee in Virginia’s 7th Congressional District, Prince William County Supervisor Yesli Vega. She’s challenging Democratic Rep. Abigail Spanberger for the seat in southern Washington, D.C., exurbs, in what had looked like a promising pickup opportunity for Republicans.
Vega, though, has drawn controversy and criticism for downplaying the possibility of becoming pregnant as a result of rape. Shortly before the Supreme Court threw out its 49-year-old Roe vs. Wade abortion decision, effectively letting states make their own laws on the issue, Vega was asked about it at a campaign event. Leaked audio recordings showed Vega saying that she wouldn’t be surprised if a woman’s body prevents pregnancies from rape because, Vega said, “It’s not something that’s happening organically" and that the rapist is doing it “quickly.”
Running in a district filled with suburban and exurban professional-class voters increasingly moving away from Republicans over social issues, Vega has spent the past three months trying to explain her remarks. She could win in a red wave, but Spanberger, an indefatigable campaigner, now has the upper hand.
Vega, along with Majewski in Ohio and Gibbs in Michigan, is one of only three Republican candidates in a crop that’s poised to flip the House red. All three could continue to emerge victorious on election night.
But the negative headlines that they and other gaffe-prone candidates are creating make it harder for Republicans to win the House. At the very least, it’s forcing outside groups allied with Republicans to spend precious resources, for advertising and other outreach, on districts thought to be in pretty good shape for Republicans.
The big question for House Republicans in the campaign’s final stretch is how many such races will have to be triaged.More from Examiner
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