Liz Truss has won the Conservative party election and becomes our new Prime Minister – so what this could mean in the world of tax?
Tax policy is all about choices, not just the total tax burden but also the individuals, or businesses who bear that tax. Recent tax policy has favoured the retired and those who have built up wealth, placing more of the burden on younger, working people – of which many have not yet built up a solid foundation of wealth.
This group are among the ones suffering the most from the cost of living crisis. There are older, less affluent people on fixed incomes, but many of those needing help are younger working people.
Wealth is usually tied up in homes, pensions and investments, all of which have had huge tax breaks over the years, but many under 40’s have not had a chance to take advantage of those breaks.
Given that those under 40 will generally have to work longer, as the retirement age continues to rise,
some will see these policies as controversial, or indeed unfair, particularly to those who are working, but do not have investments, property or pensions.
Liz Truss has said in her campaign that there’s no point in taxing people and then giving it back to them again – but this surely misses the point of tax, which is to take from some, to give to, or help others in society.
She has also stated plans to cancel the Health and Social Care Levy – which is 1.25% on National Insurance Contributions. Arguably, this wasn’t the right tax to raise funds much needed for health and social care, and should have instead been taken via income tax, across all the generations, and therefore helping younger working people. On the BBC on Sunday, Ms Truss was challenged on the potential great benefits for more wealthy earners in cutting this levy, and stood by this plan effectively acknowledging that these tax changes were not going to be re-distributive.
We assume that the 1.25% being withdrawn will also apply to the 1.25% on dividends – which was added to the Health & Social Care Levy to show more fairness (as with the way the new NIC charge extended the age for paying beyond 65, so that it was not just younger workers who were affected. So many older and wealthier tax payers will benefit from the end of this tax increase.
Ms Truss also discussed not proceeding with the planned Corporation Tax increases, though this would see the big companies benefitting, and arguably those are not the ones who need a tax break the most.
As she attempts to drive forward her idea of a low tax economy, despite calls for caution, she has said she won’t bring in any new taxes. One can assume this also means not increasing existing ones, borrowing more in the hope that it will stimulate economic growth over a more prudent approach of what the country can ‘afford’.
So, at this moment in time unless Ms Truss U-turns on her campaign, we can assume there won’t be any tax increases for at least two years, and any help with the cost of living will have to come from expenditure savings or increased borrowings.
It’s yet to be seen whether the new Prime Minister will follow through with all of her plan or make some last minute changes but as it stands the big choice for her, if she’s doing anything, is between help for everyone, for example by cutting fuel duty, capping energy prices or loans to energy firms save fuel bills. Or a more targeted approach, which is either means tested or only goes to those on benefits, this however, leaves those who are working, not on benefits and don’t qualify for means tested help, without any support. Thus it seems the former option is more likely.
