During her leadership campaign, prime minister Liz Truss promised tax cuts if she was to become PM. Now she is, so what should savers, borrowers and businesses expect? 

 

On Friday 23 September, chancellor Kwasi Kwarteng will outline tax policy changes in what Number 10 calls a “fiscal event”. Kwarteng has put all levers in the Treasury on ‘growth’ and has been engaged in some ‘kite flying’ - testing a policy by telling the press to gauge the public’s reaction - about scrapping the bonus cap for bankers. Dating back to 2014, the cap was brought in to prevent the excesses of the global financial crisis reoccurring, which ended with taxpayers bailing out big banks to the tune of billions. Scrapping this cap while most workers are seeing below-inflation pay rises during a cost-of-living crisis could prove highly controversial. 

 

Truss has also reportedly been mulling a deregulation drive in the financial sector, including potentially merging the Financial Conduct Authority, Prudential Regulation Authority and Payment Systems Regulator. Again, their roles had been split in response to the financial crisis. 

 

 

“We’ll see a major change of direction in this Mini-Budget, as Kwasi Kwarteng drives his growth agenda, fuelled by deregulation and tax cuts, in the belief it will ease the cost-of-living crisis and boost growth,” said Sarah Coles, a senior personal finance analyst at investment platform Hargreaves Lansdown. 

 

However, tax cuts, it is feared, could fuel the inflation fire further. “While it’s likely to offer immediate easing of the squeeze on household budgets, only time will tell whether it will improve the landscape for good or steer us into dangerous territory,” noted Coles. 

 

The tax cuts that were mooted would be a reversal of a national insurance increase of 1.25% for employees and employers to help finance the NHS and social care, after the Covid-19 pandemic put strain on both sectors and highlighted existing gaps. 

 

Truss’s government will also remove the green levy from energy bills, something which has already been announced as part of the Energy Price Guarantee. 

 

Coles suggested there could be cuts to VAT from 20% to potentially 15%, and perhaps tax breaks for people who take time out of work for caring responsibilities. 

 

 

Many of the cuts that have been floated have been criticised for benefitting high earners considerably more than low earners. They could also contribute to inflation or push up asset prices if high earners plough the extra money into savings and property. 

 

Instead, Coles said more targeted measures should be considered, such as subsidised energy tariffs for people in the most challenging circumstances, or additional payments for those on the very lowest incomes through the Universal Credit system.  

 

Companies are expected to benefit from a reversal of a planned corporation tax increase, but Susannah Streeter, HL senior investment and markets analyst, said there has been “a woeful lack of detail” on the plan. Instead of keeping corporation tax lower, targeted incentives would be needed to get companies investing, she said.  

 

The hospitality and leisure industries could see targeted VAT cuts, and there could be a freeze on all business rates ahead of a bigger overhaul, but Streeter noted that this had been promised for some time, with proposals repeatedly shelved. 

 

When it comes to pensions, the money purchase annual allowance could create problems for those joining the great ‘unretirement’ caused by the cost-of-living crisis. The MPAA means that once someone has accessed their pension, they can continue to contribute but their annual pension contributions are capped at £4,000.  

 

“This was supposed to stop people accessing their pension and then reinvesting it for another round of tax relief, but the same thing could be achieved with rules which only kick in when someone has done this with the express intent to recycle the cash,” argued senior pensions and retirement analyst at HL, Helen Morrissey.