UK tax and the next Prime Minister
On the 5th September the UK will have a new Prime Minister. The Foreign Secretary Liz Truss and former Chancellor of the Exchequer Rishi Sunak are fighting it out for the top job. Their policies and plans to rejuvenate the UK economy couldn’t be more different. Truss- has been the front runner throughout, however she has been heavily criticised by a number of prominent economists regarding her ‘scattergun’ approach to cutting taxes to revive the economy and get inflation under control.
Truss plans to scrap the announced rises in National Insurance and the proposed rise in Corporation Tax. The estimated cost of the proposals is £30bn which, coming on the back of the Covid pandemic spend of £360bn, seems a significant chunk of change.
Truss wishes to reform the tax system (hurrah!) – but given the recommendations of the OTS (Office of Tax Simplification) have been largely ignored for the last 4 years it will be interesting to see how she actually achieves this.
Last week a further tax reduction was proposed by her team – a 5% reduction in VAT. Some argue these plans have not been fully costed and rather than containing inflation, will send it skyrocketing.
Sunak on the other hand has a mountain to climb. Initially he stated that the priority was to get inflation under control which could not be achieved by tax reductions. However once he lost ground, Sunak U-turned his tax policy by announcing a 1p cut in Income Tax in 2024, which was widely derided, subsequently extending it by an additional 3p by 2030 (which is impossible to commit to as the Conservatives have to get through another election first!).
Sunak has since announced a temporary reduction in VAT and reform of the tax legislation but confirmed that he would not amend the proposed change in the Corporation Tax rates. Rather he would introduce further measure to reward investment to help small business.
One commentor suggested that Truss has approached the leadership campaign as a politician and Sunak as an accountant, whoever wins, an emergency budget is looking likely for the end of the month.
The information was correct at time of publishing but may now be out of date.