Ready for Rishi: Three ways the new Prime Minister could impact your money
One of the youngest, and the first British Asian to become Prime Minister, Rishi Sunak has today said it is “the greatest privilege” of his life and he wants to “give back” to the country he “owes so much to”.
In his first address this afternoon, Sunak said the UK is a great country but there is no doubt that it faces a “profound economic challenge” which requires “stability and unity”.
“I will make it my utmost priority to bring the party and country together; this is the only way to overcome the challenges we face to bring a prosperous future for our children and grandchildren,” he said.
Sunak added that he will lead with “integrity and humility day in and day out to deliver for the British people”.
So what can we expect to see from the new leader? Here are three potential areas which could come under the spotlight:
1) Pension triple lock
Just before her departure, former Prime Minister Liz Truss confirmed the pension triple lock would be protected after speculation mounted it could be scrapped to plug the big funding black hole.
Under the pension triple lock mechanism, it guarantees the basic state pension will rise by the higher of average earnings, inflation or 2.5%.
As it’s based on the September inflation figure – which was recorded as 10.1% – retirees were relieved that Truss reaffirmed her commitment to the pension triple lock as they are set for a double-digit state pension increase in April 2023. This is the biggest ever rise and the first time the state pension has come above £10,000 a year for some retirees.
But according to Helen Morrissey, senior pensions and retirement analyst at Hargreaves Lansdown, given the current need to cut back costs, Sunak may be forced to ditch this measure once more.
After all, it was Sunak as Chancellor who broke the 2019 Conservative manifesto by scrapping it for April 2022 due to distortions created by the pandemic which would have seen retirees receive big increases in their retirement income.
However, in June 2022, Sunak as the Chancellor at the time defended his decision to reinstate the pension triple lock next year as inflation soared to a 40-year high and he said vulnerable, older people needed to be protected.
Morrissey said: “Sunak has defended the triple lock in the past saying pensioners are a vulnerable group within society and that it should be protected. However, he was the one who took the decision to suspend it last year as the furlough scheme distorted earnings figures.
“Given the current need to cut back on costs, he may feel he has little choice but to do it again. It will be a tricky decision to take though given rampaging inflation has left many pensioners in severe financial difficulty.”
2) Benefits uprating
Sarah Coles, senior personal finance analyst at Hargreaves Lansdown said anyone who relies on benefits to make ends meet “will be crossing everything that Sunak’s previous commitment to uprate benefits with inflation in April will stand the test of time”.
She added: “However, given that his Chancellor has thrown the uprating into doubt, there are no guarantees at this stage. Those on the lowest incomes have been hit hardest by rocketing prices, so have been left with impossible challenges.
“If benefits don’t keep pace with inflation in April, this will make life even more impossible. On the other side of the balance, Sunak will be dealing with a divided party, nervous about re-election. It’s going to make it more difficult for him to pass legislation which is going to leave so many voters so much worse off.”
Analysis by leading think tank Resolution Foundation earlier this month revealed that while the government could save £3bn a year if it raises working-age benefits in line with earnings rather than inflation, it would see three million households lose £500 a year. But for the poorest families, it would see their incomes falls to levels last seen in 2000.
3) Base rate peaks at 5.16%
The markets are now pricing in a peak Bank of England base rate of 5.16% next year, down from 5.45% on Friday and the 6.32% on 27 September, Capital Economics confirmed.
For borrowers with a mortgage or loan, it could mean rates don’t edge up as fast and far as expected.
However, two-year fixed rates are already above 6%, adding hundreds of pounds each month to homeowner mortgage bills.
Currently the base rate stands at 2.25%, and is expected to reach 3.25% at the Bank’s next Monetary Policy Committee meeting in November.