Truss’s success was announced at lunchtime today (September 5), with the foreign secretary beating her rival, Rishi Sunak in a ballot of Conservative party members by 81,326 votes to 60,399 — a 57 to 43 per cent victory.
The incoming prime minister has promised a plan within a week to help people deal with the immediate challenge of rising energy costs and pledged to deliver “a bold plan to cut taxes and grow our economy”.
Energy costs have been front of mind for many advisers as they reacted to the new prime minister, with some highlighting the precarious situation small business owners are facing.
Bolton Business Finance’s managing director, Marcus Wright said for many small business owners, Truss’s success likely comes as a relief due to her promises to scrap planned tax rises and other measures to help with energy prices.
“The sensible and cautious approach from Rishi has lost to the populist approach by Liz Truss of tax cuts and handouts. Only time will tell which was the right approach but for the time being any short term help to SMEs will be very welcome as the economy is on the brink,” Wright said.
AJ Bell’s head of retirement policy, Tom Selby pointed out that Truss’s pledges have lacked detail on how they will be funded.
“Truss’ package of measures are anticipated to cost more than £30bn, according to the Institute for Fiscal Studies, although there is some uncertainty around this given the former foreign secretary has been studiously non-specific with some of her proposals,” Selby said.
In Selby’s view, the big question now will be whether Truss sticks to her plan not to offer additional direct targeted help to the poorest households ahead of the increase in the energy price cap.
“She clearly felt that tax cuts would appeal more to Conservative party members, but in reality they will do little for those on the lowest incomes who most need support. Given a general election is only a couple of years away, it would be no surprise to see a screeching U-turn now she has the keys to No.10.”
During the leadership campaign Truss also made suggestions of a tax break for married couples.
It's been suggested that her plans would extend the marriage allowance, which benefits couples where one does not work, or earns very little, and the other is a basic-rate taxpayer.
Currently the allowance means that someone not using their tax-free personal allowance can transfer some of it to their partner, but the suggestion is that this could be extended so the entire £12,570 allowance could be transferred, saving couples up to £2,514 a year.
AJ Bell’s head of personal finance, Laura Suter described the plans as feeling “like a policy more suited to the 1950s than modern day Britain.”
Suter said: “Despite the potential financial boost for some households during the cost of living crisis, many will see this as an odd move at a time where increasingly both parents work, and rather than encouraging economic growth and boosting productivity by getting more parents in the workforce, it instead gives a tax break for those who stay at home.”
Suter suggested that extending the tax break to those in other caring roles, such as people looking after elderly parents, would help to dodge claims of an inverse tax on the childless.
Regulation
Elsewhere, during the campaign Truss outlined plans to merge three of the financial regulators, but advisers say her plans are destined to fail.
Truss’s plan could see the Financial Conduct Authority, the Prudential Regulation Authority and the Payments Systems Regulator rolled into one new body.
Pimfa, the trade association for wealth managers and financial advisers, has previously highlighted that in the past the regulator’s approach has “been found wanting”.
Despite this, it said the government should focus on improving the existing structures rather than eyeing a merger.
Pimfa’s head of public affairs, Simon Harrington told FTAdviser: “We share the prime minister’s ambition to deliver growth across the UK economy and strongly believe that one of the key avenues for growth in this country is finding opportunities to unlock capital in productive areas.
"As part of its growth strategy, we believe that the government should put retail investors' objectives at its heart."
He added: “It is not immediately clear to us how remerging conduct and prudential regulators would bring this growth about. We would urge the government to focus on how the existing structures could be improved whilst ensuring that the regulator is suitably accountable to parliament.’
Meanwhile, BRI Wealth Management’s chief executive, Dan Boardman-Weston agreed that a merger was a bad idea.
“It’s been less than a decade since the formation of the PRA and FCA and whilst the FCA has quite rightly come under some criticism during this time, it is unclear how a merger of the two entities would solve some of the issues that the FCA has," he said.
"The current ‘twin peaks’ model is effective but a review of the performance of the FCA is fair, in light of the quite large scandals that have emerged over the last decade.
“The country, the consumer and the industry are already dealing with heightened uncertainty and we don’t need the extra uncertainty and cost that a merger would bring.”
Tax
Truss’s campaign was marked by big tax pledges, with corporation tax policy a dividing line in the contest.
Truss ruled out a change in the tax, despite Sunak pledging to increase it from 19 to 25 per cent from 2023 when he was chancellor.
Commenting on this, Evelyn’s managing director of corporate affairs, Jason Hollands said that Truss’s win means a “marked change” in direction on tax policy.
“While some have expressed concerns that tax cuts will fan inflation, it’s hard to see why keeping corporation tax rates at where they currently are would be inflationary,” Hollands said.
“Likewise, a potential reduction in VAT – an option being mooted – and the temporary suspension of green levies on energy bills would, of course help ease price rises by reducing costs to consumers,” he added.
Hollands also noted that if Truss wants to “deliver on the NHS” she will need to sort out the pensions tax issue.
“Pensions tax charges have been an ongoing issue flaring up and causing unintended consequences in the NHS, deterring doctors and consultants from taking on extra work at a time when there is a massive backlog arising from the coronavirus lockdowns. Resolving this should be a key priority,” Hollands said.
Truss is set to meet the Queen at Balmoral tomorrow (September 6), and will then return to London to address the nation from Downing Street and announce her cabinet.
jane.matthews@ft.com
