The political debate on Britain’s future prime minister is now in full swing and public opinion is divided on who the political figurehead should be at this time in history. On 7th July Boris Johnson was forced to resign, after more than 50 MPs resigned, and since then the main candidates put forward by the Conservatives have been Liz Truss and Rishi Sunak. One of the key issues of this election campaign, on which the victory of one or the other candidate is likely to be decided, will be economic and fiscal issues, considering the UK’s economic recession and the increasing number of struggling families.
The former UK Chancellor and foreign secretary exchanged views on future policies, discussing planned increases in corporation tax, the temporary abolition of green energy levies on energy bills and raising tax thresholds, as well as quick cuts to reverse Johnson’s high tax and high spending policies.
Truss stated that he will abolish the National Insurance increase and will not proceed with the planned corporate tax increase from 19% to 25% in April 2023. In addition, she plans to suspend levies on green energy bills for two years, which currently amount to £150 per year.
Many will welcome the prospect of lower taxation and some easing of the sharp increases on bills this winter. The elimination of the increase in corporation tax would also be welcomed by businesses, however tax cuts will ultimately require the pursuit of efficiencies in government spending or increased borrowing, with consequent economic repercussions. Increasing growth through tax cuts can potentially increase tax revenues over time, but with a lag effect.
Importantly, fiscal stimulus through tax cuts would put the government’s approach at odds with the Bank of England, which is trying to bring inflation under control by raising interest rates.
In contrast, Rishi Sunak is unlikely to adopt a reversal, having served as Chancellor until a month ago. He is in favour of tax cuts too, but only when inflation will be under control. Â Furthermore, he will prioritise personal taxes over corporation tax.
In the short term, the cost of living will remain high, and the coming months may be difficult for thousands of families, but the candidate at 10 Downing Street reiterated that £15 billion of measures in the form of subsidies for energy bills will be allocated, with targeted measures for those on low income.
Sunak also intends to go ahead with the increase in corporation tax, effective next year, which will make the UK less competitive for companies, but aims to reduce the deficit, which has grown during the pandemic. The former Chancellor pointed out that Truss’ plans risk leading to higher interest rates, fuelling inflation, and damaging the economy at a time when the UK’s debt is at an all-time high.
The race for the seat at 10 Downing Street will end on 5th September, the day the new UK Prime Minister will be elected.
Domenico Santomasi
Photo by Rui Chamberlain on Unsplash
