Six ways Liz Truss’s appointment as PM could impact your money
Liz Truss gained 57.4% of the vote to take the top role, compared to Rishi Sunak’s 42.6%,1. following the summer’s leadership contest.
During the campaign trail, Truss pledged a number of measures to tackle the cost-of-living crisis, as well as plans on tax, pensions and the NHS.
Industry experts reveal what we can expect from the next Prime Minister and how this will affect your finances…
1. National Insurance hikes
In April, the rate of National Insurance rose by 1.25 percentage points, from 12% to 13.25% to help fund social care.
Truss pledged to reverse this increase and Tom Selby, head of retirement policy at AJ Bell, said: “In 2022/23, the government simply added 1.25% to the National Insurance rate on workers’ pay, with the plan then to separate the levy out on payslips from April next year.
“The impact of cutting those rates back again depends on the income you earn. Someone earning £30,000 a year would pay £18.15 less NI per month – a helping hand but one that is dwarfed by energy price hikes.”
2. Energy bill freeze
Latest reports suggest that Truss is set to tackle the energy crisis by freezing utility prices while compensating energy companies with government funds or loans to be repaid over a number of years. It comes as the energy regulator, Ofgem, announced that the energy price cap for October will be set at £3,549 – an 80% increase from the current £1,971.
Walid Koudmani, chief market analyst at financial brokerage XTB, said: “This would help to tame inflation but it will come at significant cost to government finances which will likely be paid for by more borrowing. This has led to inevitable concerns about the state of the UK economy and its public finances.”
According to Paul Dales, chief UK economist at Capital Economics, Truss’ loosening in fiscal policy and the rumours of the £70-£100bn package to help the economy through the cost-of-living crisis “could mean that CPI inflation is something like four percentage points lower than otherwise” so it may rise from 10.1% in July to a peak of 10.5% rather than 14.5% as it currently forecasts.
Dales added: “It’s been suggested that Truss will announce her package to counter the energy crisis within a week and that there will be a bigger fiscal event within a month (presumably announcing tax cuts).”
3. Personal allowance increase
Sian Steele, head of tax at wealth manager at Evelyn Partners, said: “The new PM is said to be considering a possible increase in the personal allowance for income tax. The personal allowance was set at £12,570 for 2021/22, and frozen at that level by the Spring Budget 2021 for the four-year period from 2022/23 to 2025/26, with no inflationary increases.”
4. Pension triple lock
Last month, it was reported that Truss would honour the 2019 Conservative manifesto relating to the pension triple lock if elected as Prime Minister, at a cost of £21bn over the next three years.
Under the triple lock mechanism, it guarantees the basic state pension will rise by the higher of average earnings, inflation or 2.5%.
It was ditched 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, the former chancellor, Rishi Sunak, defended his decision to reinstate the pension triple lock next year amid soaring inflation which would see retirees receive double-digit pension rises.
Selby said: “Assuming she sticks to her guns and the triple-lock remains in place, retirees could receive a huge boost to their incomes next year. September’s inflation figure will be the one to look out for, with the Bank of England predicting a peak at 13% at some point later this year.
“If it were to hit 13% for September, the basic state pension would rise by £18.45 to £160.30 per week (£8,335.60 per year) in April 2023, while the new state pension would increase by £24.10 to £209.25 per week (£10,881 per year).
“This could cost the Treasury well in excess of £10 billion – a huge price to pay for the keys to Number 10. What’s more, this isn’t a one-off cost – it would fall on the Exchequer every year.”
5. Tax break for married couples
Head of personal finance at AJ Bell, Laura Suter, said: “Her rumoured plan involves extending the marriage allowance, which benefits couples where one doesn’t work, or earns very little, and the other is a basic-rate taxpayer. Currently, the allowance means that someone not using their tax-free personal allowance can transfer some of it to their partner, but the suggestion is that this could be extended so the entire £12,570 allowance could be transferred, saving couples up to £2,514 a year.”
Suter added: “Despite the potential financial boost for some households during the cost-of-living crisis, many will see this as an odd move at a time where increasingly both parents work, and rather than encouraging economic growth and boosting productivity by getting more parents in the workforce, it instead gives a tax break for those who stay at home. Extending it to those in other caring roles, such as people looking after elderly parents, helps to dodge claims of an inverse tax on the childless, but regardless it feels like a policy more suited to the 1950s than modern day Britain.”
Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, added that possible tax breaks for people who take time out of work for caring responsibilities “would favour couples who opt for a traditional model of having a single breadwinner, rather than those who want to share responsibilities – who have been promised no additional help with the cost of childcare”.
6. VAT cut
During the summer, rumours surfaced suggesting that Truss was looking at cutting the VAT rate from 20% to 15%. However, Coles warned: “While it would help ease prices for those on the lowest incomes, there’s always the risk it encourages those on higher incomes to buy more – fuelling inflation.”