Liz Truss has been named the next UK prime minister after defeating former chancellor of the exchequer Rishi Sunak in a Conservative Party leadership contest.
She won 58% of the votes cast and will now take on the role of prime minister, succeeding outgoing Boris Johnson, who continuously polarised the country. Truss will be the UK’s fourth prime minister in seven years.
Truss will face a barrage of issues as soon as she officially takes the role tomorrow, this includes dealing with rising inflation, cost of living crisis and spiralling energy bills. The newly appointed prime minister has made a lot of promises to “deliver” on various issues including tax cuts.
Dan Boardman-Weston, chief executive and chief investment officer at BRI Wealth Management, said: “After a lengthy summer of debate and disarray, it’s pleasing that we have certainty on who the next prime minister will be. The news of a Truss victory comes as little surprise to the markets given that she has been the firm favourite for a number of weeks and the impact on equity, bond and currency markets has been limited today, though sterling and gilts have been very weak over the last month.
“Truss enters office with an unenviable set of problems that she will have to react to quickly. First and foremost is the energy crisis that will quickly deal a crippling blow to households and businesses as we head into Autumn and Winter.
“Whilst it’s anticipated that support will be announced for households in the coming days, businesses need clarity on support they may be offered over the coming months. Without support from the government, countless perfectly viable businesses will be destroyed whilst energy prices remain high.
“There will be no honeymoon period for Truss and her premiership will be made or broken by her action over the next few months. The country needs decisive action and greater certainty. Hopefully, Truss will deliver.”
Impact on taxes
During her victory speech, Truss continuously mentioned about going back to Conservative Party roots which included making various tax cuts.
National Insurance and Income Tax are reportedly in the firing line – as Truss looks to reignite the gloomy economy.
Tom Selby, head of retirement policy at AJ Bell, said: “Liz Truss may scrap the social care National Insurance levy as soon as she enters office. The levy was introduced in April this year with the stated aim of funding proposed reforms to the UK’s creaking social care system.
“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 ($34,503, €34,759) a year would pay £18.15 less NI per month – a helping hand but one that is dwarfed by energy price hikes.
“The move also calls into question how the planned social care reforms, which include a cap on lifetime costs, will be funded. While the idea of a hypothecated tax is of course a nonsense in reality – all tax and NI goes into the same pot – at some point the government will need to explain how social care reforms will be funded if the levy is scrapped.”
Triple lock
Another issue facing Truss is her position on the pension triple lock.
Secretary of state for work and pensions Therese Coffey reiterated the government’s commitment to reinstate the triple lock in the 2023-24 financial year.
This comes after the UK government temporarily moved to a ‘double lock’ of the higher of price inflation or 2.5%, excluding earnings growth from the April 2022 increase, because of pandemic-related distortions in national average earnings.
The triple lock is a regular addition in the Conservative Party manifesto to keep its older vote base happy – but with inflation at 10.1% currently – it is likely to be moved to a double lock again.
Selby added: “The triple-lock, a manifesto commitment, is supposed to guarantee the state pension rises by the highest of average earnings, inflation and 2.5%.
“However, when average earnings in the three months to July 2021 – the figure usually used for the triple-lock the following year – surged past 8% this was deemed too expensive by then Chancellor Rishi Sunak. The earnings element was suspended for a year and state pensions instead increased by just 3.1%, in line with the September 2021 inflation figure. That decision saves the Exchequer around £5bn a year, every year.
“Liz Truss has pledged not to go down this path again as prime minister. 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 in April 2023, while the new state pension would increase by £24.10 to £209.25 per week. This could cost the Treasury well in excess of £10bn – 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.”
Merging regulators
During the Conversative Party leader contest, reports were rife that Truss would merge the Financial Conduct Authority (FCA) with the Prudential Regulation Authority (PRA).
Rachel Vahey, AJ Bell head of policy development, said on the rumours: “As part of her campaign, Liz Truss was said to be considering creating a mega financial regulator. Now it’s confirmed she will take office as PM, it will be interesting to see if she follows up on this kite-flying announcement.
“Merging regulators is no small task. Each has specific duties and tasks, and in the meshing of the regulators it would be important to make sure that the key protections of each are still carried out.
“The pensions regulatory environment, however, may benefit from simplification. There could be a case for merging the FCA with the Pension Regulator to create just one regulator responsible for all defined contribution pensions.
“This would help bring consistency for all pension consumers, meaning they get the same level of protection regardless of the background surrounding how the pension is established. It would also be easier for providers implementing new rules, who have found in the past that two sets of rules from two regulators are contradictory in practice.
“This review could include a closer look at the role the Financial Ombudsman plays, and the extent to which it should support and uphold the FCA regulations. As Truss gets her feet under the desk at Number 10 we will see whether the threat of a mega financial regulator was mere chest beating designed to send shock waves, or whether she truly believes this is the right way forward to protect consumers.”
