On 7 July Boris Johnson, U.K. Prime Minister announced that he would be standing down as leader of the Conservative and Unionist Party (the Conservatives) (currently the majority party in the U.K. Parliament) and, consequently (given the U.K.’s constitutional framework), U.K. Prime Minister (though, in the latter case, only once his successor has been chosen). A host of Conservative candidates have since thrown their hats into the ring to succeed Mr. Johnson as both leader of the party and U.K. Prime Minister. 

Following a series of debates and hustings, on 20 July 2022, Conservative members of the U.K. Parliament narrowed the field to two candidates: Rishi Sunak (until 5 July, U.K. Chancellor of the Exchequer) and Liz Truss (current U.K. Foreign Secretary). The final decision now rests with the wider members of the Conservative party, whose numbers equate to over 180,000 (the exact figure has not been disclosed), with the successor to be announced on 5 September 2022.

Given the wider economic and inflationary pressures currently impacting U.K. households and businesses, it is perhaps unsurprising that both candidates have put tax and fiscal policy pledges at the heart of their respective campaigns. Very broadly speaking, Rishi Sunak favours an approach that largely maintains the status quo in the short term, whereas Liz Truss is advocating for tax cuts “from day one”.

Rishi Sunak

Rishi Sunak has centred his proposals on maintaining the status quo in relation to tax in the short term as, in his view, to do otherwise would cause wider damage to the U.K. economy and households, in particular, with respect to tackling rising inflation. This approach is perhaps unsurprising, given that the current regime was put in place during his recent tenure as Chancellor, including a planned increase in the U.K. corporate tax rate from the current rate of 19% to 25% from April 2023, and a 1.25% increase to the rate of National Insurance contributions (NICs), which took effect in April this year.

In setting out his position, Mr. Sunak has stated that:

  • he remains committed to the proposed rise in corporation tax; and
  • there would be no reversal of the increase in NICs rates, arguing that the increase remains necessary to support the U.K. National Health Service (NHS) post-pandemic.

However, more recently, Mr. Sunak announced that:

  • he would temporarily remove VAT from domestic energy bills (currently levied at a rate of 5%) for one year from October 2022, assuming prices will increase (as is expected); and
  • he would cut the basic rate of income tax (currently 20%) to 19% in 2024, followed by additional cuts which would, in time, result in a 16% basic rate by 2029.

Mr. Sunak had stated previously that personal income tax rates would not be cut prior to autumn 2023 (with effect from April 2024) at the earliest.

Liz Truss

Liz Truss has centred her policy proposals on tax cuts “from day one”, promising an emergency budget in autumn 2022 if successful. Proposals announced by Ms. Truss to date include:

  • abandoning the scheduled rise in corporation tax, and reversing the increase in U.K. NICs;
  • cutting the effective tax burden on households, with a particular focus on affording relief to married couples and individuals who take time out of employment to care for children or other family members;
  • temporarily suspending the environmental (or “green energy”) levies currently charged on energy bills;
  • rejecting suggestions of a “windfall tax” on energy companies’ profits; and
  • reviewing and reforming business rates.

Ms. Truss has stated that her proposed tax cuts are aimed at encouraging U.K. economic growth and will not be accompanied by reductions in government spending. 

Note: This blog was originally posted on 29 July 2022, but has since been updated to reflect changes to certain proposals which were announced shortly following the original posting.