A new PM, a new tax regime?
Following today’s confirmation that Liz Truss will be our new Prime Minister, we expect an ‘emergency fiscal event’ to be held shortly, containing some key tax announcements. This may or may not be a full Budget, but it is thought it will include a reverse in the recent rise in national insurance contributions. The new PM has however specifically ruled out introducing any new taxes.
As the cost-of-living crisis continues, with energy bills set to increase from October and rising inflation, the Conservative leadership debate has focussed on tax cuts and spending plans.
Liz Truss’s campaign has been marked by big tax pledges, which she is expected to announce formally later this month. In the last hustings, she also commented that the tax system is too complicated, and that the number of loopholes needs to be reduced.
A headline announcement, which will be welcomed by many, is her plan to reverse the rise in national insurance contributions. This 1.25% rise was only implemented in April by then Chancellor Rishi Sunak, with an increase in the threshold for payment from £9,880 to £12,570 from July. It is not clear if any further changes will be made to the current NI threshold, or if the recent 1.25% increase to the dividend tax rate will also be reversed.
The new PM is said to be considering a possible increase in the personal allowance for income tax. The personal allowance was set at £12,570 for 2021/22, and frozen at that level by the Spring Budget 2021 for the four-year period from 2022/23 to 2025/26, with no inflationary increases.
Liz Truss has also stated that she will cancel the planned increase in corporation tax, which would have increased the rate paid by the most profitable companies from 19% to 25% from April 2023.
Other ideas she has floated include:
- A reduction in the standard rate of VAT, from 20% to 15%, but budgetary considerations may prevent this,
- Reviewing the tax system to improve the position of those who are not working due to caring responsibilities for children or the elderly;
- A review of business rates.
In the final leadership hustings, she ruled out introducing new taxes, including windfall taxes on energy providers.
The ‘emergency fiscal event’ predicted for September may or may not be a full Budget. The Office for Budget Responsibility has confirmed that if asked by the new Chancellor to produce a forecast on 14 or 21 September, it would be able to do so, before Parliament enters recess on 22 September. This would allow a full Budget to be given, but the new PM could choose to wait and save further announcements for an Autumn Budget. The Autumn Budget, if it goes ahead, is normally in late October or early November.
Despite the focus on tax during the leadership campaign, all announcements are of course subject to change when formal plans are drawn up. As our new PM grapples with the economic situation, currently planned measures may be postponed or cancelled, and other measures introduced.
With continued focus on the tax system and changes in Government, you may wish to consider your objectives and plans for the future, and you can speak to one of our team to discuss your tax or financial position.