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Liz Truss behind a desk signing a document
flickr_crown_Tim Hammond / No10 Downing Street

Will Truss tax cuts save the country?

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As Liz Truss prepares to take office as the UK's next Prime Minister, AccountingWEB's resident columnist examines what her campaign pronouncements mean for the country, its taxpayers and their advisers.

5th Sep 2022
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The curtain has fallen on the latest act of political theatre, with Liz Truss prevailing over former Chancellor Rishi Sunak in the Conservative leadership election. As we await the composition of Prime Minister Truss's new cabinet, our thoughts turn to the coming weeks and months and how many of those campaign promises will actually come to fruition.

To date, Truss has shown every sign of borrowing from the Johnson (and ironically Sunak) playbooks, trotting out ambitious but ill-conceived ideas to friendly journalists to get a public reaction before backtracking at speed as the law of unintended consequences takes hold.

She has consistently repeated the mantra of “tax cuts not handouts”, although recent press speculation suggests that she is about to freeze energy prices and thereby offer a bigger handout even than the former Chancellor managed in the teeth of the pandemic.

However, for accountants, the main interest in the early pronouncements will lie in the area of taxation. Let’s look at a few of the rumours to see what they might mean for the country, taxpayers and advisers.

Cutting income tax and employee national insurance contributions in a variety of ways will be of the most benefit to those paying those taxes. It will not help those who are struggling most with the energy crisis, since they frequently earn too little to pay any or more than a negligible amount of income tax or NIC.

There have also been suggestions she might also seek to cut top rates of tax - something she stated as 'fair' on the BBC's new politics show yesterday. This is supposed to help those at the bottom of society because the rich will spend more. However, if they spend it overseas or on purchasing French champagne and beluga caviar then the benefits may not trickle down in quite the desired fashion.

Effectively reducing corporation tax by ditching the increases announced by Sunak may also be of limited benefit. If I wanted to increase investment, surely offering investment incentives makes far more sense.

In addition, with an economy that has been tanking for over a decade and promises to increase spending on defence, the NHS and, one imagines, salaries as inflation goes off the scale, there must be a limit to the borrowing and a need to recover money from some source or other. I haven’t a clue where this is going to come from but it isn’t yet apparent that Truss has either.

Cutting VAT from 20% to 15% makes for good headlines but, once again, if we focus on the destitute, most of their spending will be on fuel and food neither of which is subject to the 20% rate anyway.

In reality, as became obvious when fuel duty was reduced, such savings are barely passed on to consumers and the big winners will be the multinational conglomerates who will enjoy larger profits but pay almost no tax in our country anyway.

None of this sounds encouraging economically, especially with interest rates spiralling, but it could be good news for accountants since any changes to tax regulation should lead to additional fees.

The minor concern here is that if rates go down too far, clients may not be willing to pay all that much for advice around methodology to mitigate taxation.

As I have written before, I would much rather see plans to simplify tax legislation and the ramping up of HMRC in order to recover far more of the money that has been lost to the Exchequer through both tax evasion and scams related to Covid support handouts.

If the rumours are true and the new government really does freeze consumer energy prices in the short term and possibly going forwards, that will clearly be good news for many.

However, it does not address the massive profiteering that the price hikes will facilitate, which requires a windfall tax. Neither does it address the long-term need to generate new forms of energy and, most significantly for our clients and ourselves, it offers nothing to small businesses.

Therefore, we just have to hope that Truss looks at targeted action to help smaller businesses, many of which are already on the brink of closure and need urgent help with fuel costs that have already multiplied up to five-fold, not to mention employer’s national insurance contributions and also business rates which put them at a massive disadvantage when compared with gigantic multinational online competitors.

I’m not sure that I’d be wanting to get the key to the door to number 10 at the moment but presumably, the lady knows what she’s doing and is just keeping her cards close to her chest.

Replies (24)

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By Justin Bryant
05th Sep 2022 14:03

The f/x markets clearly have very little confidence in her, that's for sure, with GBP£ having dropped the most for 5 years last month against USD$ and still heading lower.

"This is supposed to help those at the bottom of society because the rich will spend more."

If anyone says that they are either very dumb or a total liar, so the f/x markets probably have it right.

Also, this doesn't help: https://www.accountingweb.co.uk/any-answers/treasury-muppets

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Replying to Justin Bryant:
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By Hugo Fair
05th Sep 2022 15:35

Or to put it more simply - where's the evidence for the wistful "presumably the lady knows what she’s doing"?
She's not shown this previously despite countless opportunities to do so.

She's only likely to show her mettle if hernias become a prevalent UK problem.

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Replying to Justin Bryant:
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By Justin Bryant
06th Sep 2022 13:42

Just seen this. Nice to know that Reuters agrees with me here:

"She signalled during her leadership campaign she would challenge convention by scrapping tax increases and cutting other levies in a move some economists say would further fuel inflation.

That, and a pledge to review the remit of the Bank of England while protecting its independence, has prompted some investors to dump the pound and government bonds."

https://www.reuters.com/world/uk/britains-truss-expected-be-named-conser...

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By ireallyshouldknowthisbut
05th Sep 2022 14:42

I find it amazing that news outlets keep on repeating the mantra "if we cut corporation tax, business will invest more", given investments are already tax deductible.

Its a baseless policy, completely without any merit. Business invest if they see an investment opportunity, tax is the last thing on the list of considerations.

Not a single business is publicly calling out for CT rates, albeit I imagine privately a lot of donors are bleating about it, which is presumably where they are coming from on this one.

Trying to deal with a supply lead economic crisis through tax cuts suggests she skipped more than the odd economics lecture at oxford. Its simply not going to work.

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By alfredpennypinch
05th Sep 2022 15:02

Quote:
I’m not sure that I’d be wanting to get the key to the door to number 10 at the moment but presumably, the lady knows what she’s doing and is just keeping her cards close to her chest.

That's a presumption for which there is very little evidence. Given everything we're currently facing, if all they can come up with is "Tax cuts will fix everything" then it shows how utterly bereft of ideas they are.

Personally, I think her ambition is light years ahead of her ability and that's why she's tight lipped - she's got nothing of any value.

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By JustAnotherUser
05th Sep 2022 16:05

Liz Truss ends in one of two ways,

She is in charge long enough to be at the helm once the global can-kicking of the next global financial crisis finally explodes, the one that will make 2007/8 look like child splay.

She aids in said can-kicking long enough to reach the next election and passes the poison chalice to the next mug.

Something, something, Hero , Something, something, Long Enough To See Yourself Become The Villain.

Although I'm not sure who's Hero / Villain she will be. A Hero tot he Rich is a villain to the poor and vice versa.

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Red Leader
By Red Leader
05th Sep 2022 17:31

Will it end the same way as the "Barber Boom"?

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By jon_griffey
05th Sep 2022 17:41

Well if she cancels the MTD project she will get my vote.

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Replying to jon_griffey:
By ireallyshouldknowthisbut
06th Sep 2022 10:08

Labour said they would cancel it.

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Replying to ireallyshouldknowthisbut:
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By Open all hours
06th Sep 2022 10:56

That’s good citation available?

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Replying to Open all hours:
By ireallyshouldknowthisbut
06th Sep 2022 11:02
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Replying to ireallyshouldknowthisbut:
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By Hugo Fair
06th Sep 2022 12:01

I'd have a little more faith in such propaganda if it evinced a slight understanding of the topic on which it pronounces.
".. the introduction of mandatory quarterly tax reporting"?
Whatever MTD is - there has been no attempt at any stage to introduce that!

[BTW: I don't take sides given that they both seem to regard lying as a minimum skill].

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Replying to ireallyshouldknowthisbut:
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By Paul Crowley
06th Sep 2022 13:11

'15. Scrap quarterly reporting for
businesses with a turnover of under
£85,000.
The Conservative’s Making Tax Digital
(MTD) programme has been criticised for
creating an unnecessary administrative
burden for small businesses, especially
the introduction of mandatory quarterly
tax reporting. While the introduction
of MTD has been delayed for those
businesses under the VAT threshold,
Labour will scrap this requirement
altogether.'

Too confused to figure out what it actually means

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Replying to Paul Crowley:
By ireallyshouldknowthisbut
06th Sep 2022 13:41

@Hugo/Paul, I agree its badly drafted, but just wanted to point out that there is actual political opposition to this madness given I was asked for a citation.

or at least there was in 2019. No idea what the current policy is other than "sit back and laugh at the new PM whilst she makes herself unelectable"

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Replying to ireallyshouldknowthisbut:
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By Paul Crowley
07th Sep 2022 12:12

I agree
This is a win for all non Tories
Teresa May all over
For all his faults Boris looked the part, the MP's choice for final two, far less.

But if Labour could write a pledge such that I could believe it then I would advise all my clients of such, together with the estimated cost of me complying with MTD ITSA on their behalf.

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By steve 12321
05th Sep 2022 17:42

It’s not just about investment - it’s actually nice for business owners to keep their own money to spend. Not just pay more and more on tax. Take away the incentive for the entrepreneur and businesses makes no sense to me. Let business people be rewarded.
It’s unlikely they will be putting it in the bank. They may have more
Reason to grow their business and in doing so employ more staff.

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By creamdelacream
06th Sep 2022 09:22

I really like Liz and I'm quietly optimistic that she will be a good PM and make some good changes. She's not polished but makes a lot of sense. Whereby Rishi was polished but seemed very untrustworthy. I also like that she had a decent career in the private sector, and has management accountancy experience, so she's not just a career politician.

I'm glad Liz won it and we don't have one of the unthinkable alternatives like Keir Starmer.

I wonder who would have to become PM for positive articles and comments to be written about them.

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Replying to creamdelacream:
By ireallyshouldknowthisbut
06th Sep 2022 10:10

I think for positive articles you need to have credible policies, not things that only make sense in the warped world of the Daily Mail.

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Replying to ireallyshouldknowthisbut:
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By creamdelacream
06th Sep 2022 10:57

She isn't even PM yet, give her a chance. I do not read the Daily Mail but I'll avoid it if it's a warped world. What would you recommend? Something balanced like the Guardian?

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Replying to creamdelacream:
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By alfredpennypinch
06th Sep 2022 11:35

What do you mean, "give her a chance"? She's spent the last two months telling everyone what she'd do as Prime Minister and how she'd do it; it was wall to wall nonsense (in my ever so humble opinion, obviously).

I'm also going to guess that your implication is that The Guardian is as bad as the Mail just in the other direction. It isn't. Not that it's in any way balanced, just not outright twisted.

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Replying to alfredpennypinch:
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By creamdelacream
06th Sep 2022 16:01

It hasn't even been on her radar for more than a few months and then a quick campaign rushed through. I am more interested about what she does over the coming years as our prime minister.
Absolutely the Guardian is terribly biased to the left. The Guardian is essentially woke HQ at this point, a captured publication. You do get the odd muted article containing the other side's views admittedly, but not often.

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paddle steamer
By DJKL
06th Sep 2022 12:16

Tax is really not the issue- right now some move to mitigate energy costs for business is imperative.

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By mkowl
07th Sep 2022 10:51

I think Ofsted closing down Eton has a failing school and removing PPandE degrees at Oxbridge would serve a better option

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Replying to mkowl:
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By Hugo Fair
07th Sep 2022 12:55

Removing PPE as a degree course from Cambridge would be a major achievement ... given that it has never been on offer there!

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