The Prime minister will be announced on the 5th of September at a time when there is much financial instability. It is no surprise then that the final two candidates have been making big promises on tax.
Whilst promises aren't always fulfilled, we will take a look at the tax-related plans from both Truss and Sunak to see what could be coming in the near future. The incoming leader will have to combat a combination of the cost of living crisis, post pandemic struggles, the war in Ukraine, gas and electricity prices rocketing and record-breaking inflation. The bank of England has predicted that the country will fall into an economic recession this year as a result so what the "lucky" winner will choose to do regarding tax will impact the recession and the journey out of it.
When will the new Tory party leader be announced?
Boris Johnson's official resignation date is the 6th September, and the the new leader of the party will be announced in a ceremony on the 5th September at 11:30am. The new PM will then begin their duties on the 6th. Currently polling indicates Liz Truss will be elected the new leader of the Tory party, and therefore the new Prime Minister.
What is Sunak promising for UK tax?
Firstly, Sunak had pledged to reduce VAT on domestic energy bills from 5% to 0% for 12 months if bills rise above £3,000 per year (as they have been predicted). This will likely cost the government £4.3bn a year and is a suggestion the ex-chancellor turned down earlier this year.
Sunak has also laid out plans to cut 3p off income tax by 2029. There are already plan to cut income tax from 20p/pound to 19p/pound by April 2024, but Sunak has proposed see this cut further to 16p/pound by the end of 2029. In response to this, the IFS said:
"This is a very substantial tax cut, but it is still considerably smaller than the net tax rise announced by Mr Sunak as Chancellor, which was comfortably more than twice as large."
What is Truss promising for UK Tax?
Firstly, she has suggested reversing the national insurance rise brought in by Sunak in April 2023, designed to help bring money into the NHS. This will cost the government around £13bn per year.
There is also another recent Sunak decision that might be under fire - the Corporation Tax rise which was due to rise to 25% by April 2023 but on a sliding scale to protect smaller businesses. Truss hopes scrapping this will result in business growth and investment. The change would cost the government around £17bn a year, although the real-term cost might be lower due to increased corporate investment.
Finally, she has proposed suspending green levies on energy bills, reducing bills by around £150 and costing the government £8.5bn a year. Wile the discounts would be welcome, the government would have to replace funds that would have otherwise contributed towards the UK's net zero targets.
Truss does not seem to be particularly keep on the IR35 reform, a change that has been branded a "mess" and "puzzling". She has stated that she wants to usher in a "small business and self-employed revolution... because they are the future of our economy." Recent legislative changes have made self employment more challenging so this is welcome news to many.