What can we expect from Truss Taxonomics?

Liz Truss is the new Prime Minister, the UK's 56th, and was elected by the Conservative Party on her tax cutting agenda, as well as for promising help with the cost-of-living crisis. 

An Emergency Budget is expected to take place on 21 September 2022 to usher in urgent help for individuals and businesses, with a more detailed Budget possibly to take place in November.

Key difficulties immediately facing the new PM include:

• Inflation is predicted by the Bank of England to reach 13%, but food inflation has been predicted to reach 20% in 2023
• Household heating bills are set to rise from £1,971 a year to £3,549 a year from 1 October. The cap will be revised again in January and could reach £5,000+
• Interest rates could rise to as much as 7%
• The economy could enter a recession

The first action Liz Truss will take after meeting the Queen in Balmoral is the appointment of a new Chancellor of the Exchequer, the third this year after Rishi Sunak and Nadhim Zahawi, This is likely to be the Business Secretary, Kwasi Kwarteng.

In the Financial Times today Kwarteng stated that he and Truss remain fully committed to the independence of the Bank of England and the important job it has in the months ahead to bring down inflation.  He added:

"Economic growth is the key to sound public finances and a strong economy. Liz is clear that we must be unashamedly pro-growth. That is why we will create the conditions for business investment and innovation to flourish, which in turn will provide jobs and wealth to all of our citizens, and reduce our debt-to-GDP ratio in the long term."

Also of interest, Kwarteng explains that the focus will be on unlocking investment and growth, rather than how to tax and spend.

What will be in the Emergency Budget on 21 September?

The Emergency Budget could include major announcements on:

• Furlough scheme scale of help for homes and businesses with heating bills through the winter, with a possible plan to freeze gas and electricity prices.
• Temporary axing of green levies from fuel bills
• Reversing the recent NIC increase
• Cancellation of the proposed Corporation Tax Rise from 19% to 25% on 1 April 2023
• Temporary cut in business rates

The scale of the help will be huge (£60bn-£90bn), and comes on top of the £407bn already spent on dealing with the pandemic.

Parliament will then rise from 23 September to 16 October for the party conferences.

What could be in the Autumn Budget?

There will, undoubtedly, be more substantial measures to follow the Emergency Budget as the financial crisis becomes clearer and the new Chancellor also takes a longer-term look at where the economy is headed. There will be an emphasis on boosting the UK's growth prospects and reducing taxes.

Expect to see announcements on:

• Temporary cut in the rate of VAT (if not in the Emergency Budget) - this may be in general or sector specific such as hospitality
• Possible acceleration of the proposed 2024 income tax cut of 1%
• Unfreezing of personal tax thresholds to remove fiscal drag
• Reforms to R&D tax credits to boost investment
• Changes to the Super Deduction and the Annual Investment Allowance
• A review of IR35 and the off-payroll working rules?
• Review of family taxation, e.g. making the income tax personal allowance fully transferable between couples (not just 10%). This could be restricted to those with caring responsibilities.
• Reforming or scrapping the sugar tax
• Increasing the lifetime allowance on pensions.

The rest of this year promises to be a bumpy ride for the new PM and Chancellor, and we will see how inflation is tackled and how everyone is helped with fuel bills.

[Gary Mackley-Smith]