Liz Truss: It's fair to give wealthiest more money back

Liz Truss has said it is fair to give higher earners more money back through tax cuts, saying recent Tory policy has failed to grow the economy.

The Tory leadership hopeful has pledged to reverse a National Insurance rise.

The Institute for Fiscal Studies (IFS) said the cut would be a gain of £7.66 for households on the lowest incomes, but those on the highest incomes could gain more than £1,800.

Ms Truss said higher earners paid more tax, so would gain more from cuts.

"Of course, there are some people who don't pay tax at all," she told the BBC. "But to look at everything through the lens of redistribution I believe is wrong because what I'm about is about growing the economy and growing the economy benefits everybody."

• Truss vows energy plan in a week if she becomes PM

• What cost-of-living payments will I get?

Ms Truss, who is the favourite to win against rival Rishi Sunak according to pollsters, said the economic debate over the past 20 years had been dominated by the issue of distribution of income.

However, speaking on Sunday with Laura Kuenssberg, she said: "What's happened is we have had relatively low growth so we've had not more than an average of 1% growth and that has been holding our country back."

She said "it is fair" to give higher earners more money back through tax cuts.

But Mr Sunak, speaking on the same programme, said it was right to "focus the most help on the most vulnerable".

Both candidates for Tory leader - and prime minister - are under pressure to announce measures to help households with the soaring cost of energy that has contributed to high levels of inflation.

Ms Truss has promised she will "act immediately" and announce a plan to deal with soaring energy costs within a week if she becomes prime minister on Tuesday. However she decline to give any details.

Earlier in her campaign to succeed Boris Johnson, Ms Truss told the Financial Times she rejected "handouts" as a means of helping people cope with the rising cost of living.

Mr Sunak said he would target further energy payments at pensioners and the low-paid, beyond those he announced as chancellor.

Liz Truss unapologetically embraced the message that her planned flagship National Insurance cut would benefit the richest to the tune of £1,000 or more, and the poorest barely. The answer we have become used to on such issues would be that this is only one part of a wider package.

But Ms Truss was making the point that she will not judge the success of a particular tax policy on whether it immediately benefits poorer households.

Over the past 20 years or so, most Budgets have been accompanied by an analysis of the winners or losers, by income brackets.

Judging such moves in this way would inevitably show many tax cuts in a bad light. In the case of an NI cut, that is because the very poorest do not pay and the richest will benefit across all their earned income.

Ms Truss says she wants to judge the appropriateness of such moves in other ways - such as whether they promote growth, investment and jobs. In this specific case, the NI rise also broke a manifesto pledge, which is another reason she judges it as "fair" to reverse it.

The challenge for her, should she win, is that the impact of a move such as this can be compared very quickly to the acute difficulties facing many millions of households.

When households that on average have for decades spent roughly £1,000 a year on energy, then move to £3,500 and then £4,000 or £5,000, it is presentationally challenging to prioritise a tax cut that generates that amount of saving only for the richest 10% of the country.

Her supporters will argue her energy plan will come first, this week, before the wider economic plan including NI. But if her energy plan comes up short for some average households, she will be under pressure to explain why she is effectively keeping back tens of billions for lower NI and cancelling a corporation tax rise.

National Insurance contributions rose by 1.25% in April to fund the NHS and social care. From next year, the extra tax will be rebranded as the Health and Social Care Levy.

The increase meant that, instead of paying National Insurance contributions of 12% on earnings up to £50,270 and 2% on anything above that level, it has increased to 13.25% and 3.25% respectively.

In July, the government raised the threshold on payments meaning employees can now earn £12,570 a year before paying National Insurance, up from £9,880 a year previously.

Stuart Adam, senior economist at the IFS, told the BBC: "Tax cuts can help to stimulate economic growth but that would still leave two questions.

"One is, what Liz Truss would do in the short run to help households, given that tax cuts go mainly to the better off who aren't going to struggle the most.

"The second question is how you would pay for tax cuts, because while tax cuts can increase the growth of the economy, they don't do that by so much that the tax cuts pay for themselves."

Ms Truss also reiterated her plan not to go ahead with a rise in corporation tax on businesses which she said would be "completely self-defeating".

Mr Sunak, in his former role as chancellor, had announced the main tax rate for companies would rise from 19% to 25%.

She said: "What I know is that putting up tax on business is not going to attract more businesses to invest in this country."

Ms Truss had suggested she might review the Bank of England's mandate.

However, speaking to the BBC, she said she was a "great believer in the independence of the Bank of England".

"I think it was about three decades ago we stopped politicians making decisions about interest rates, so I'm not going to start saying what interest rates the Bank of England should be setting."