After weeks of hustings, debates and interviews the Conservative Party has finally chosen Boris Johnson’s successor as Prime Minister.
Liz Truss fought off competition from seven other candidates, including former Chancellor Rishi Sunak, to secure the UK’s top political post.
In the final round of the leadership contest, Truss received the backing of 81,326 Tory party members, compared to Sunak who gathered 60,399 votes.
Whenever a new PM takes the reins, your finances are bound to be affected in some shape or form. Though Truss’s manifesto is currently light on concrete proposals, we do have some idea about how she’ll seek to tackle the slew of challenges facing the UK.
Due to the extent of these, the new PM can ill afford to ease her way into the role. The UK economy is hurtling towards recession, with your finances under severe strain from the soaring cost of living and rising interest rates.
Here we look at how Truss is aiming to address these problems and examine how the early days of her premiership might affect your purse strings.
Unquestionably the new PM’s most pressing priority is supporting you with your energy bills, which are set to soar even higher in autumn.
The average household will see their annual payments rise 80% to an eye-watering £3,549 from 1 October when the new price cap is introduced.
While this will affect everyone, some will feel it harder than others. There are fears it could leave the lowest income families being unable to heat their homes.
To offer a helping hand here, Truss is pledging a “robust” approach, yet has ruled out increasing the existing scheduled handouts. From October, you will receive £400 off your energy bills, paid in six instalments, as part of a policy ushered in by Sunak during his stretch as Chancellor.
Despite there being little in the way of alternatives being put forward at this stage, Truss is at some point expected to unveil a package of measures to financially support families through what is set to be a bleak autumn and winter.
What we know more about is the PM’s proposed shake up to the tax system, with cuts to national insurance (NI), corporation tax and value added tax (VAT) all on the table.
Arguably the new PM’s most controversial measure is a mooted cut to VAT.
VAT is a tax on paid on many goods and services. This includes day-to-day items such as clothes, food and drink sold in pubs and restaurants, and petrol.
The current rate of VAT is 20% and has been frozen at this figure since 2011. But according to reports, the new PM is being urged by Conservative backbenchers to wield the axe, with a five-percentage point reduction to 15% on the cards.
Who would benefit?
Both consumers and businesses stand to gain if VAT is cut. As you may recall, with many businesses affected by the lockdown measures introduced to halt the spread of Covid, the government introduced a temporary reduced rate of 5% for hospitality, holiday accommodation and attractions.
The idea behind lowering VAT is to encourage consumers to spend as the price of goods and services should come down, putting more money in your pocket. The Telegraph reported that research by the Institute for Fiscal Studies think tank found this could save the average household around £1,300 a year.
Truss has voiced plans to reverse April’s NI hike of 1.25 percentage points.
NI is a form of tax paid on earnings and profits by employees, employers and the self-employed.
Due to the latest rise, employees now pay 13.25% NI on weekly earnings between £190 and £967, and 3.25% on anything above, while the rate for employers increased to 15.05%.
However, with consumer pay packets increasingly under pressure from rising inflation - and in what would be his final Spring Statement as Chancellor - Sunak announced that the lower earnings threshold would rise from £190 a week to £242 from 6 July. This means that less of your pay is subject to NI.
Who would benefit?
Truss plans to keep the higher threshold but scrap April’s NI hike, meaning those earning more than £12,570 a year would pay less NI than this time last year, giving a slight boost to take-home pay. However, the impact on the lowest earning households would be marginal and would make few inroads into easing the burden on your finances.
In addition, retirees who have stopped working completely and are now solely reliant on income drawn from their pensions and investment would not financially benefit here.
A further measure proposed by the new PM is to abandon April’s scheduled corporation tax rise.
Corporation tax is paid by UK businesses on their profits, currently set at a flat rate of 19%. However, from 1 April, the top rate is due to rise to 25% on business profits exceeding £250,000. For profits between £50,000 and £250,000 a sliding scale will be applied.
Under Truss’s proposal, these plans will be scrapped and the uniform rate of 19% will remain.
Who would benefit?
From a personal finance perspective, the main beneficiaries here would be freelancers and small businesses who structure themselves as private limited companies and have annual profits exceeding £50,000.
Employed workers would see no uplift in their pay packets, unfortunately. At least not until April 2024 when the planned 1% cut to the basic rate of income tax is due to be introduced. And not to mention, as this was one of Sunak’s policies, there is no guarantee Truss will push it through.
Need some help?
In the absence of a clear and defined manifesto, we can only speculate about what Liz Truss’s premiership could mean for your finances. In the meantime, if you’re concerned about how the cost of living crisis is affecting your long-term financial goals, then seeking expert advice can really help.
At Unbiased, we can connect you with a financial adviser who can help keep your finances on track regardless of who’s Prime Minister.
If you found this article interesting, you might also find our article on the mini-budget 2022 informative, too.