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Liz Truss to be UK's next prime minister: what it means for your taxes, bills and savings

·Finance Reporter, Yahoo Finance UK
·8-min read

Watch: Liz Truss' speech after being made new party leader and next PM

Liz Truss has vowed cash-strapped families will get more help to pay for the rising cost of living. As the next prime minister (PM), she has pledged tax cuts in the form of the national insurance rise being axed, corporation tax rises suspended, and green levies removed from energy bills.

Truss also is also planning an energy bill freeze after winning the Conservative party election to become the next PM.

“During this campaign I campaigned as a Conservative and I will govern as a Conservative. We need to show that we will deliver over the next two years. I will deliver a bold plan to cut taxes and grow our economy,” she said in her victory speech.

"I will deliver on the energy crisis, dealing with people’s energy bills, but also dealing with the long term issues we have on energy supply. And I will deliver on the National Health Service," she added.

Truss received 81,326 votes, while former chancellor Rishi Sunak received 60,399 votes.

Liz Truss reacts, as she is announced as Britain's next Prime Minister at The Queen Elizabeth II Centre in London, Britain September 5, 2022. REUTERS/Hannah McKay
Liz Truss reacts, as she is announced as Britain's next prime minister in London on 5 September 2022. Photo: Hannah McKay/Reuters

During her campaign, the now new Tory leader vowed never to introduce new taxes as prime minister as she faces criticism for failing to outline her plan to tackle the cost of living crisis.

She said there would be “no new taxes” under her premiership and shunned an additional windfall tax on oil and gas companies.

Read more: Kwasi Kwarteng set to become UK's first Black chancellor

Truss has indicated that she will spend billions of pounds supporting vulnerable households and small businesses through the cost of living crisis, although such payments would be temporary.

Energy bills

Truss has pledged to be “pro-business” and promised to pursue measures to ensure that businesses and local high streets will be able to survive rising energy prices.

“I will be looking across the board to make sure we’re increasing supply and therefore dealing with the root cause of the issue rather than just putting a sticking plaster on,” she said. “But I would absolutely be looking to act on business energy costs.”

Truss told BBC One’s Sunday With Laura Kuenssberg show she would provide immediate help with energy bills if elected, but declined to say how.

Energy bills continue to rise.
Energy bills continue to rise. Chart: Yahoo

“Within one week I will make sure there is an announcement on how we are going to deal with the issue of energy bills, and of long-term supply, to put this country on the right footing for winter,” Truss said.

“I understand that people are struggling, that businesses are also concerned about their energy bills and the impact it could have on their future.”

An array of options has been worked up in Whitehall to help struggling households and a freeze on energy bills is one of a series of options due to be presented to the new prime minister this week.

Permanent changes to personal taxes — reversing the NICs rise

Truss has stated that she would reverse the increase in national insurance contribution (NIC) rates, at a cost of £13bn per year. The Institute for Fiscal Studies (IFS) said this would boost incomes across the board, but would benefit higher-income households who have the most income from employment.

Shown calculations that her planned reversal of a recent rise in national insurance would benefit top earners by about £1,800 a year, and the lowest earner by about £7, and asked if this was fair, Truss said: “Yes, it is fair.”

Read more: What the new chancellor should do to help struggling households

She said: “The people at the top of the income distribution pay more tax, so inevitably when you cut taxes, you tend to benefit people who are more likely to pay tax.

Rachael Griffin, tax and financial planning expert at Quilter, said: "Truss has also grabbed lots of headlines by claiming to want to scrap the national insurance hike on day one of her tenure in office.

"However, she has so far not put forward any proposals for how the planned social care reforms will be paid for without the increase. With huge energy price rises on the horizon it’s understandable to want to lower NI. However, scrapping the hike may well lead to a situation where Truss robs Peter to pay Paul if she wants to keep the planned social care reforms"

VAT cut

Truss has also indicated an interest in further tax cuts, promising to “review taxation of families to ensure people aren't penalised for taking time out to care for children/elderly relatives”.

She has also said she would review inheritance tax as part of a general review of Britain’s tax system.

Truss is rumoured to be considering cutting VAT by 5% and slashing income tax. However, questioned on whether she was considering slashing VAT, Truss replied: “I am not ruling things in and out . . . I’m not sitting here writing a Budget or fiscal event.”

The step is being considered as a “nuclear” option, with other options being considered including a 2.5% cut in VAT, from the current standard rate of 20%.

Additional temporary support — a moratorium on green energy levies

To provide further immediate support, Truss has said she would have a "temporary moratorium on the green energy levy".

According to Ofgem, a combination of various levies increased energy bills for a household with typical energy consumption by £153 per year — though that figure will change over time as well as varying with household energy consumption.

Read more: FTSE and European shares tumble as Russia shuts off Nord Stream gas pipeline

Truss has not specified when the temporary moratorium would begin and end or which levies on energy bills would be suspended.

Business taxation — cancelling the corporation tax rise

The March 2021 Budget announced an increase in the main rate of corporation tax, from 19% to 25%, from April 2023, for companies making annual profits in excess of £250,000.

Truss wants to cancel it, saying that a lower tax rate would strengthen incentives to invest in the UK and thereby promote economic growth, helping to recoup some of the initial cost of the tax cut.

“The Truss campaign has used the mantra of ‘no new taxes’. This implies the 25% rate of corporation tax planned for 1 April will revert to 19%. The Social Care Levy in the previous Chancellor’s last Budget will be reversed. The windfall tax on energy companies has been enacted – but it, too, could be abolished. The BP share price is up over 1.5% an hour after the result was announced suggesting the markets think it’s a possibility," Laurence Field, corporate tax partner at Crowe UK.

“New investment zones have been floated – whether these will build on the freeport programme, or replace it, probably depends on how benevolent Truss feels towards her former leadership rival," she added.

Benefits crackdown

Truss has responded to calls to “fix the benefits system” by saying she would “change the incentives” under the benefit to push more people into work.

Pensions

Truss has previously voiced her commitment to the triple lock, which may prove a sigh of relief for pensioners.

Millions have seen the real terms value of their state pension income drop as a result of inflation, and will be banking on the return of the triple lock next year.

The state pension is expected to rise by a double figure percentage as inflation continues to soar, providing a bumper boost for older people.

Read more: Will you be better or worse off under Liz Truss?

"Truss will struggle to balance the books though if she wants to stay true to the Tory manifesto of keeping the triple lock in years to come in light of soaring inflation and her desire to not add any other taxes and slash existing ones," Jon Greer, head of retirement policy at Quilter, said.

"This ultimately will throw into question how the incoming social care reforms will also be funded. Something may have to give and pensioners up and down the country will be hoping that it doesn’t start with the triple lock." 

Family tax

At the moment, married couples or those in a civil partnership who earn less than the current tax threshold of £12,570 can transfer 10% of the tax allowance to their partner. This can reduce a couple’s tax bill by up to £252 a year.

Under Truss' plan, anyone who is married or in a civil partnership could be able to transfer their whole tax allowance to their partner, which could save couples and families hundreds of pounds in tax per year.

"A fully transferable allowance would mean one spouse could earn up to £25,140 tax-free if the other is not earning due to caring responsibilities. Although not an intrinsically bad idea it fails to help the many families who have two working parents. With a potential recession looming it feels like an odd policy which might not encourage people into the workforce and therefore boost economic growth," Quilter expert Griffin said.

Read more: Energy bills: How to save on appliance running costs

Liz Truss’s emergency tax and spending pledges could cost upwards of £60bn a year, with experts warning they will fail to help the worst-off deal with the rising cost of living.

The Resolution Foundation think tank said the tax cuts had a big price tag and were “not a serious answer for the current crisis”

Watch: What will Liz Truss do to ease cost of living crisis for households and businesses?