The UK is currently in limbo as the nation awaits the appointment of the next Conservative Party leader and Prime Minister. Following Boris Johnson’s resignation, people across the UK are now waiting to see whether Tory Party members will select Rishi Sunak or Liz Truss.
Truss, MP for Southwest Norfolk and Secretary of State for Foreign, Commonwealth and Development Affairs since 2021, has made some key promises as part of her campaign to become the next Tory leader. Among these are tax plans that would see the increase in National Insurance reversed and the planned rise in corporation tax stopped.
However, her economic guru, Professor Patrick Minford, has admitted that if these plans come into force, interest rates in the UK could rise to an eye-watering 7%. He claims, however, that this would be a good thing, and Truss has stated that Minford fully supports her plans.
Interest rates in the UK currently stand at 1.25%, following a series of rate hikes since December 2021.
Interest rate increases ‘a good thing’
In contrast, Sunak claims it is essential for inflation to come down before tax cuts.
However, in a recent interview, Professor Minford said: “If we raise corporation tax, we’ll kill off growth. It’s crazy to try to begin getting the debt-to-GDP ratio down five minutes after Covid. Borrowing is actually something that allows you to pursue the right policies and not be blown off course by temporary shocks.”
Referring to warnings that the tax cuts proposed by Truss could mean higher inflation and soaring interest rates, he added: “Yes, interest rates have to go up and it’s a good thing. A normal level is more like 5-7 percent and I don’t think it will be any bad thing if we got back to that level.”
According to Minford, very low interest rates mean killing off savings and creating an environment where ‘zombie companies’ survive simply because they can borrow money at such low rates. He added that a healthy economy needed a decent interest rate and that this was something he was keen to see.
A spokesperson for Truss’s campaign claimed that Minford did not have any formal involvement in the campaign. The spokesperson added that Truss was determined to deal with the soaring cost of living and aid the growth of the economy, which meant that there could not be a “business-as-usual economic policy” in place.