PM Liz Truss: 5 changes we’re expecting, 5 we’re not and 8 for the wish list
- Liz Truss has been named as the new Prime Minister
- Kwasi Kwarteng is expected to become her Chancellor
- 5 personal finance changes we’re expecting
- 5 personal finance changes we’re (probably) not
- 8 changes we’d like to see
Sarah Coles, senior personal finance analyst, Hargreaves Lansdown:
“The smoke and mirrors of campaigning have been packed away, so after a summer of hints and pledges, soon we’ll finally discover whether the new Prime Minister will deliver the radical solutions that this profound energy crisis requires.
So far, during the endless rounds of hustings, articles and interviews, we’ve discovered a handful of personal finance changes that are on the cards, and a handful more which have technically been ruled out. Truss is putting an awful lot of faith in tax cuts to ease the pain of rising prices and then kick-start economic growth. Of course, we’ll have to see whether all that sticks when the rubber hits the road.
But with price rises of this scale hitting across the board, and propelling us into the biggest two-year drop in real incomes in a century, the government can’t afford to fall short when considering possible solutions.
Personal finance changes we’re expecting
- A reversal of the National Insurance hike. This was a pledge from the outset, although we know changes to the tax system take time, so we can’t expect overnight cuts.
- Considering cutting VAT from 20% to 15%. This emerged during the summer, and 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.
- Removing green levies on energy bills. This was an early pledge to lower energy bills, although Liz Truss is sticking with net zero pledges, so it would be a tough balancing act.
- A review of the current tax system – including inheritance tax. Nothing specific has been promised here, just the potential for more tax cuts further down the line.
- Possible tax breaks for people who take time out of work for caring responsibilities. This 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.
Personal finance changes we’re not expecting
- No changes to the triple lock. After last year’s switch to a double lock it was always a concern for pensioners, but Liz Truss has pledged she will stick to it.
- No new lump sum payments or ‘handouts’. Truss has confirmed that helicopter payments don’t fit with her ideology, and she wants to ease the cost of living with tax cuts.
- No new taxes. This has been pledged, but it will give the government less room to manoeuvre.
- No cuts to public spending – with cost savings delivered through efficiencies. This is going to be incredibly difficult to deliver, because inflation will mean the price of everything rises for the public sector – including wages. It means either less money for services or dramatically higher levels of borrowing.
- No windfall tax on energy companies. This was confirmed early in the summer, because Truss wants to see companies invest in the transition to green energy. However, it will be interesting to see whether this view will withstand the incredible pressure of the next few months, or whether the need to fund more support leads to a change of heart.
Changes we’d like to see to tackle the cost-of-living crisis
1. More support for vulnerable people: This could mean bringing in new subsidised energy tariffs for those facing the biggest financial challenges, or it could mean additional payments for those on the very lowest incomes through the Universal Credit system.
2. A review into how benefits are uprated: At times of high inflation, annual reviews with a long lag between when inflation is measured and when it is implemented leave those on the lowest incomes with horrible challenges.
3. Energy bills to be frozen in some way. This could apply to everyone, or just to those who need it most. There have been reports this is one of the options being worked up in Whitehall. If the government takes this option, it would need to wrestle with the question of how to pay for it – whether to fund it themselves through borrowing, support commercial loans for energy companies repaid through higher prices later, a windfall tax, or a redistribution of the £400 energy bill payment for all families.
4. Investment in longer-term solutions. This includes ensuring that the transition to sustainable energy sources is as quick and effective as possible, and that the country sees a revolution in insulation.
5. For any tax cuts to be engineered to avoid powering more inflation – which is a big ask. The risk is that an awful lot of potential tax cuts will do more than offset rising prices for higher earners. While it would be a welcome boost for them, it could mean pushing prices up even further, which could leave us all worse off.
6. Support for businesses facing runaway energy costs. Truss has suggested that cuts in corporation tax will help offset rising energy costs. If she continues down the tax cut road, she could do something with business rates too. However, if this doesn’t offset the additional energy costs sufficiently, the government could consider a price cap, particularly for smaller and more vulnerable businesses.”
7. Revisit the money purchase annual allowance
Helen Morrissey, senior pensions and retirement analyst at Hargreaves Lansdown:
“People who have had to raid their pension to make ends meet or are returning to work to boost their pension to cope with soaring bills face a pension headache. Under current rules if you have already accessed your defined contribution pension, you can’t contribute more than £4,000 a year.
The money purchase annual allowance of £4,000 was introduced to stop ‘recycling’, where people access their pension and then re-invest contributions for another round of tax relief, but the same thing could be achieved with anti-recycling rules, which only kick in when someone has accessed their pension with the express intent to recycle the cash.
8. Permanently cut the penalty for the Lifetime ISA
At the moment, if you take cash out of the LISA before the age of 60 – for any reason other than to buy your first property or retirement – you face a penalty of 25%. While it may look like you are just giving up the government bonus, it also takes a chunk of the money you have saved. It means anyone turning to this money while life is tough will pay a horrible price for having tried to do the right thing. We want to see the LISA penalty reduced to 20%, to help people use their money in the way that makes most sense for them, without losing some of their own savings at a time when they can least afford it.”