A range of tax cuts look set to be introduced now that Liz Truss has taken up post as Prime Minister after a prolonged leadership campaign.
It's no secret that Ms Truss has inherited an unenviable in-tray, with the cost of living crisis. Households across the UK are seeing their finances increasingly stretched by rising energy bills, petrol prices and food costs.
Energy bills have been the biggest subject of concern, but the new Prime Minister is likely to have an impact on our finances in a variety of other ways, based on pledges and promises from her election campaign.
Here we run through what Liz Truss might mean for your money now that she is in Number 10.
Truss has been open about her opposition to the increase to National Insurance which took place earlier this year.
The 1.25% hike was designed to raise funds for the NHS, and specifically the provision of social care. Concerns over the impact of the National Insurance increase on our finances during a time of rising prices led to the government increasing the threshold at which we start paying the levy back in July, from £9,880 to £12,570.
This brings it in line with how much we earn before we start paying income tax.
Truss has said that she wants to reverse the National Insurance increase entirely, which would mean a tax reduction for everyone. However, it’s a move which would make a much bigger difference to high earners than those on lower incomes ‒ analysis from the Resolution Foundation found that only 15% of the cost of scrapping the National Insurance increase would go to the poorer half of the population.
Marriage tax allowance
There is currently a tax break open to some married couples and those in civil partnerships, which Truss has pledged to extend.
Everybody gets a £12,500 personal allowance, which is how much you can earn each year before paying income tax. If one partner doesn’t use all of that allowance, then they can currently pass 10% of the allowance onto their higher-earning partner, so long as they only pay the basic rate of income tax, through the marriage allowance.
It could mean that couples save as much as £262 a year on their income tax bills.
However, the new Prime Minister has said she wants to expand these tax relief, allowing the lower earning partner to transfer up to their entire personal allowance. In other words, the higher-earning partner could see their own personal allowance boosted by not just £1,250 but £12,500, and could save couples as much as £2,500.
Promising tax cuts was a regular feature of Liz Truss’s leadership campaign, with a potential reduction to income tax floated.
This could mean reducing the rate paid by taxpayers, but there has also been speculation that she could instead look at increasing the personal allowance.
This would mean that we can earn more before having to hand any over to HM Revenue & Customs.
Again, this isn’t something that has been directly touted by Truss, but floated by her allies in the press.
The idea is that by reducing the rate of VAT charged on our spending ‒ potentially halving it to 10% ‒ will give the economy a boost, as well as deliver a saving to households.
The State Pension triple lock
The triple lock was introduced to the State Pension regime back in the days of the Coalition government, and is designed to ensure that pensioners enjoy a real increase to their incomes each year.
It guarantees that the State Pension will increase by the largest of the three following measurements:
- The rate of inflation
- The rate at which wages are rising
It has become increasingly controversial in recent years, given the state of the economy. Indeed, last year it was adapted given the massive jump in wages which took place following the pandemic and the end of the furlough scheme, which meant the earnings element of the calculation was removed.
Liz Truss has emphasised her support for the triple lock however, promising to keep it in place while she was on the campaign trail.
During the campaign, the new prime minister also talked about the benefits system.
She said that she would look to “fix the benefits system” and change the “incentives” in place to push people into work.
We don’t know what that will look like in practice, but it is unlikely to mean that those receiving state support are better off now that she is in Number 10.
Paying for tax cuts
One issue that hasn’t been particularly well addressed throughout the campaign is how the proposed tax cuts and reliefs will be paid for.
Reducing the benefits on offer will raise some money, but won’t be enough to cover the costs of the other pledges, which run into the billions even before the energy price freeze plan is considered.
Given Truss has explicitly promised “No new taxes”, then her government will have to look elsewhere for savings. That may mean more borrowing, which is only likely to put more pressure on the value of the pound.
In addition, certain suggestions ‒ like that VAT cut for example ‒ may drive even higher levels of inflation, which is already at its highest point in decades. The money ‘saved’ through tax cuts could swiftly be eroded by the higher prices we pay for our bills and grocery shopping.
So for now, there’s an element of ‘wait and see’ when it comes to what Liz Truss will mean for your money as Prime Minister. While tax cuts are almost certainly on the way, only time will tell if they actually leave any of us materially better off.
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John Fitzsimons has been writing about finance since 2007, and is a former editor of Mortgage Solutions and loveMONEY. Since going freelance in 2016 he has written for publications including The Sunday Times, The Mirror, The Sun, The Daily Mail and Forbes, and is committed to helping readers make more informed decisions about their money.
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