Mohamed A. El-Erian , Columnist

UK Needs to Do More to Restore Stability and Growth

Prime Minister Liz Truss’s reversal on taxes is not enough. Further policy steps will be required.

October 16, 2022 at 3:03 PM UTC

Mohamed A. El-Erian is a Bloomberg Opinion columnist. A former chief executive officer of Pimco, he is president of Queens’ College, Cambridge; chief economic adviser at Allianz SE; and chair of Gramercy Fund Management. He is author of “The Only Game in Town.”

A tax U-turn won’t be sufficient for the prime minister.
Photographer: Sean Smith (pool)/Getty Images

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The decision by UK Prime Minister Liz Truss on Friday to reinstate a corporate tax increase next year was necessary, but that will not be enough to restore the type of financial stability that the nation requires to pave the way for high, inclusive and sustainable growth. The reversal needs to be accompanied by further policy steps to reduce the hole in the budget created by unfunded tax cuts, to validate the growth assumptions and to forestall new financial system fragility. The UK also needs time and luck.

By shelving her earlier decision not to freeze the corporate tax rate, which will rise to 25% from 19% starting in April, the prime minister has reduced by some £20 billion the budget hole created by the tax component of the three-part mini-budget. Combined with the earlier U-turn on the top income tax bracket, almost half of the unfunded tax cuts have now been rolled back — enough to satisfy some but not enough to restore the type of financial stability that prevailed just before the plan was announced.