Tax

On 5 September, Liz Truss was selected by the approximately 180,000 members of the Conservative and Unionist Party (the Conservatives) as leader of the Conservatives and, therefore, U.K. Prime Minister.

Throughout her campaign (see our previous update here), Liz Truss has been a strong advocate for tax cuts and ‘fresh thinking’, arguing against established economic orthodoxy, and has promised an emergency budget in the coming weeks to implement her proposals. To date, Ms. Truss’ tax proposals are understood to have included:

1. abandoning the scheduled rise in corporation tax (from the current rate of 19% to 25%, previously scheduled to take effect from April 2023);
2. reversing the 1.25% increase to the rate of National Insurance contributions (NICs) that took effect in April 2022;
3. cutting the effective tax burden on households, with a particular focus on (among other things) increasing the basic income tax rate threshold (broadly, income tax is currently levied at 20% on earned income between £12,571 and £50,270) and affording additional tax reliefs to married couples and carers;
4. temporarily suspending the environmental (or “green energy”) levies currently charged on energy bills;
5. rejecting suggestions of a “windfall tax” on energy companies’ profits;
6. a possible cut to the standard rate of UK value added tax (from the current rate of 20% to 15%) levied on the sale or supply of most goods and services; and
7. reviewing and reforming business rates.

Perhaps the greatest divide between Ms. Truss and her former rival, Rishi Sunak centred on the economy, in particular on how to best protect households and businesses against the immediate cost-of-living crisis and, over the longer term, how to restart U.K. economic growth. Ms. Truss’ argument, broadly, has been that tax cuts will encourage U.K. economic growth (so that, in time, they should be largely self-funding) and should not be accompanied by corresponding reductions in government spending.

On the U.K.’s approach to European energy concerns, in addition to the tax proposals outlined above Ms. Truss has stated that a new government will take ‘decisive action’, promising an announcement of a package of measures within her first week as Prime Minister.