Before his statement Friday, the Treasury chief confirmed that he was reversing a hike in workers’ national insurance contributions that was introduced by the previous administration. Kwarteng’s predecessor, Rishi Sunak, imposed the increase to pay for social care and a backlog in the public heath service.
Soaring inflation and a cost-of-living crisis driven by steeply climbing energy costs are the biggest immediate challenges facing Truss's government. Inflation stands at 9.9%, near the highest Britain has seen since the 1980s, and is predicted to peak at 11% in October.
In the past two weeks, the government has announced that the government will cap gas and electricity bills for households and businesses, amid fears that the poorest won't be able to afford to heat their homes and companies will go bust this winter.
But U.K. officials haven't disclosed how they plan to finance the relief measures, which analysts say could run to tens of billions of pounds.
Some economists have warned about the sharp rise in government borrowing.
The Institute for Fiscal Studies warned that borrowing is set to hit 100 billion pounds ($113 billion) a year even after the temporary energy bills support measures come to an end in two years’ time. The research institute said that with such levels of debt, officials’ claims that reducing tax rates would lead to sustained economic growth was “a gamble at best.”
Paul Johnson, director of the institute, also said that the Conservative government’s measures to help millions pay their energy bills won't reverse a steady drop in living standards.
“I am afraid that the energy price shock has made us poorer and we will be worse off,” he said. “The government can spread the pain over time and between people, but in the end it is not going to be able to magic it away.”
On Friday, Kwarteng is expected to announce new “investment zones” across England where the government will offer tax cuts for businesses and help create jobs. He will also give details on how the government aims to accelerate dozens of major new infrastructure projects, including in transportation and energy.
Truss — who is inspired by Margaret Thatcher's small state, free market economics — has insisted that growing the economy and tax cuts for businesses will benefit everyone in the country.
But critics say Truss's right-wing instincts are the wrong response to the U.K. economic crisis.