Truss Vs Sunak on Tax

On the 5th September the new PM will be announced, and at a time when there is so much financial turmoil in the country it’s no surprise the final two candidates are making some big promises on tax!

Of course, we know that promises aren’t always fulfilled. But we thought we’d take a look at the tax-related plans of both Truss and Sunak to see what could be coming in our near to medium future.

And why is tax a huge focus ahead of this tory leadership result? Frankly, it’s because the country is in crisis – a combination of cost of living crisis, post pandemic struggles, the war in Ukraine, spiralling gas and electric prices and record-breaking inflation. The country is predicted to fall into an economic recession this year as a result, so the ‘lucky’ winner will have plenty on their shoulders for the foreseeable future. And as such, taxes – the cogs that keep money turning – are a headline issue, there’s no easy way out at the moment but what we choose to do regarding tax will impact the recession and our journey out of it.

When Will The New Tory Party Leader Be Announced?

Boris Johnson’s official resignation date is the 6th September, and we have now been told that the new leader of the party will be announced in a ceremony on the 5th September at 11:30am. The new PM will begin their duties on the 6th September. Currently polls are indicating Liz Truss will be elected the new leader of the tory party, and therefore the new Prime Minister.

What Is Sunak Promising For UK Tax?

Firstly, he has pledged to reduce VAT on domestic energy bills from 5% to 0% for 12 months only if bills rise above £3000 per year as predicted (a suggestion which was turned down earlier this year by Sunak himself!) which will cost the government £4.3bn a year.

Secondly, to cut 3p off income tax by 2029, which will cost the government £19bn a year. There are already plans to cut income tax from 20p/pound to 19p/pound by April 2024, but Sunaks plan would see this cut further to 16p/pound by the end of 2029. The IFS have said, “This is a very substantial tax cut, but it is still considerably smaller than the net tax rise announced by Mr Sunak as Chancellor, which was comfortably more than twice as large.”

What Is Liz Truss Promising For UK Tax?

Firstly, she’s suggesting reversing the National Insurance rise brought in by Sunak in April 2023, designed to help bring money into the NHS. This will cost the government around £13bn per year.

Secondly, she’s planning on scrapping another recent Sunak decision – the Corporation Tax rise, which was due to rise to 25% by April 2023, but on a sliding scale to protect smaller businesses.She hopes this will result in business growth and investment. The change would cost the government around £17bn a year, however the IFS have pointed out that the real-term cost may be lower due to increased corporate investment, but not low enough to pay for itself.

Finally she proposes we suspend green levies on energy bills, reducing bills by around £150 and costing the government £8.5bn a year. While the discount ti energy bills would be welcome, it will mean that she has to find around £8.5bn to replace the funds that would have contributed towards the UK’s net zero targets.

Other Changes We Can Expect From The Candidates

In addition, we’re seeing some indicators of other areas that Sunak and Truss differ on key financial matters.

Truss seems to be particularly anti-IR35-Reform, changes that have been branded a “mess” and “puzzling”, she has labelled herself as pro-self employed and stated that she wants to usher in a “small business and self-emplyed revolution…because they are the future of our economy”. This would be welcome news indeed after the recent legislative changes that have made self employment more challenging, but the prospecting new PM would need to act on this promise.