Liz Truss clashed with Joe Biden over economic policy ahead of a meeting as the sidelines of the United Nations summit, as the US president lashed out at “trickle-down economics”.
The prime minister admitted her own tax-cutting plans will initially benefit the rich more than the rest of the country – insisting that economic growth would “benefit everybody” in the long-run.
Ms Truss also appeared to suggest her government was willing to lift the cap on bankers’ bonuses, despite outrage among MPs, unions and economists at the proposal.
It came as Mr Biden said that he was “sick and tired” of the theory that cutting taxes for businesses and the wealthy will see the benefits “trickle down” into the pockets of the least well-off.
Ms Truss confirmed the government will this week reverse the national insurance hike and axe a planned rise in corporation tax. “We have to look at all tax rates … Corporation tax needs to be competitive with other countries so that we can attract that investment,” she said in New York.
Asked about the fairness of her tax plans, the PM 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.”
Ms Truss added: “What is going to deliver that economy that benefits everybody in our country. What I don’t accept is the idea that tax cuts for business don’t help people in general.”
Asked by the BBC about allowing bankers bigger bonuses, and whether people were entitled to wonder “whose side” she was on, the PM did not knock down the idea that the cap on bonuses introduced in the wake of the 2008 financial crash could soon be scrapped.
“What I want to see is a growing economy, so everybody in our country has the high paid jobs that they deserve, the investment into their town or city or area,” she said.
Ms Truss said she was willing to make unpopular moves in her quest for growth. “Not every measure will be popular,” she said – insisting that she was focused on “growing the size of the pie” rather than focus on making sure the proceeds of growth are fairly distributed.
She and chancellor Kwasi Kwarteng are finalising the details of a mini-budget on Friday, now branded by the Treasury as a “growth plan”, which seen could the end of a curb on bankers’ bonuses brought in across the EU after the 2008 financial crash.
Mr Kwarteng is also expected to announce the set-up of low-tax and low-regulation investment zones, allowing businesses in handpicked regions to be able to ignore some environmental regulations and pay lower rates.
The PM and Mr Biden will meet in New York on Wednesday, where they are both attending events as part of the UN general assembly.
In a message on Twitter ahead of the meeting, Mr Biden said: “I am sick and tired of trickle-down economics. It has never worked. We’re building an economy from the bottom up and middle out.”
While the message was presumably intended for a domestic US audience, it underlines the economic and political divide between the White House and the free-market Tory in No 10.
Meanwhile, MPs on the Treasury select committee have demanded an Office for Budget Responsibility (OBR) forecast alongside Mr Kwarteng’s mini-budget on Friday to “provide reassurance and confidence to international markets and investors”.
But No 10 indicated that there will be no OBR forecast. A spokesperson said: “Whilst we could have asked the OBR to do one for this event, given the need to move swiftly this would have involved compromises in the quality and the completeness of a forecast.”