BDO Global Tax Alert

What to expect from the new UK Prime Minister

08 September 2022

The new Chancellor will have a very busy few weeks ahead to implement Prime Minister (PM) Liz Truss’ policies on taxes and the cost-of-living crisis. An announcement of a new Energy Price Guarantee to freeze energy costs at their current level from 1 October 2022 is expected to be followed quickly by an Emergency Budget (or “fiscal event”) that is likely to focus on further measures to help households and businesses through the winter months (click here for FAQs on the Emergency Budget). While these proposals have been discussed on Truss’ campaign trail, she has been non-committal about specifics. So, what can we expect from our new PM in the first days and weeks of her tenure?

Liz Truss’ voting record – What can we learn about her views on tax policy?

During the leadership campaign, both candidates made promises on tax policy, and Liz Truss talked of making tax cuts to the tune of GBP 30 billion or more, with at least some reductions taking effect immediately. As always, it is hard to know whether these campaign-trail promises will be followed through, but where we can find proof of her views on tax is in Truss’ voting record. This demonstrates that she is firmly in favour of reducing corporation tax, so it may form part of her measures to help businesses with rising prices; she has spoken before about eliminating the corporate tax increase planned for 1 April 2023.

While she has talked of boosting support for businesses in the UK, it is not clear whether there will be any specific changes to capital allowances, specifically whether the super deduction (currently due to expire when the corporate tax increase takes effect) will now be allowed to continue. With a wide range of organisations calling for some long-term stability in capital allowances to enable businesses to plan future investments, it is hoped that businesses will get clarity on the future direction of tax policy for investment soon.

She has also promised to remove much of the EU-derived “red tape” that inhibits activity as part of her long-term plan for economic growth and, like many politicians before her, pledged to “overhaul” business rates. This is intended to include a review of the IR35 rules with the aim of sparking a “small business and self-employed revolution.” Wider reform of the tax system is also on her agenda: during the leadership campaign she announced she would “have a complete review of the tax system.” Similarly, Truss’s voting record shows that VAT has always been in her sights -– she has always voted in favour of capping VAT rates, so it follows that she may turn to cutting VAT as a first port of call.

Truss has remained strongly in favour of increasing personal income tax allowances over the past few years and there have been rumours that her team have been considering increases in personal tax allowances and the basic rate band as part of a cost-of-living support package (see below). This would be an expensive move and, notably, no direct mention of it was made during the campaign. However, her repeated commitment to reverse the April 2022 National Insurance Contributions (NIC) increase for individuals and employers is highly likely to happen—perhaps as early as November—although whether this also means reversing the NIC threshold increases that took effect from 6 July (and took some low earners out of NIC altogether) is not clear.

Another late campaign commitment to “no new taxes” is the clearest statement of her views on tax policy: holding to that promise may be a difficult task for her new Chancellor.

A new Chancellor

Truss has appointed former Business Secretary Kwasi Kwarteng as Chancellor. He is a strong ally and is broadly aligned with Truss’ stated economic policies, including on windfall taxes, raising income tax thresholds and reductions in capital gains tax. As Chancellor, Kwarteng is taking on a Treasury under immense pressure, with Truss’ proposed sweeping tax cuts leaving large holes in the public finances. Historically, he has been a proponent of low taxation and free markets, but when confronted with the growing calls for direct government intervention to support businesses and households through the current energy crisis, these leanings will be put to the test.

Former Chancellor Nadhim Zahawi has done some of his homework though; Treasury has been working on options for the incoming government to consider and expectations are growing that the new Chancellor will announce a COVID-style cost-of-living support package for families and businesses in a matter of weeks.

Emergency budget proposals

The energy crisis has had a huge impact on businesses across the UK, and is by no means over. In part driven by the Russian invasion of Ukraine, short-term solutions to the crisis are complex. The focus from the new PM has thus far been mostly on supporting households through the winter, with measures for businesses less certain, with measures for businesses less certain.  

The government’s planned intervention in the wholesale energy markets will fix energy prices for households at their current level for two years but the same guarantee for business, charities and public sector organisations will only last six months. However, the PM has promised longer term energy costs support for small local businesses (e.g., pubs) and an interim review of the business energy guarantee in January 2023. While this will come as a huge relief for all, it leaves open the question of whether there will be further support announced in the budget.

A reduction in business rates for smaller businesses (e.g., an increase in the small business rate exemption to cover properties with a rateable value of up to GBP 25,000) and a possible extension of the existing 50% relief for retail, hospitality and leisure businesses are all rumoured to be part of a COVID-style support package that is being considered. Similarly, a temporary reduction in the VAT rate applied to hospitality and leisure sales may be announced to help support those sectors as struggling consumers cut back on leisure spending.

Businesses can expect to benefit from the reversal of the April 2022 NIC increase and some measures specifically targeting energy costs. Formal confirmation that the corporation tax rate will not rise to 25% in April 2023 (as previously planned) may also be a comfort, even if it provides little help in the short term.

For individuals, aside from reversing the April 2022 NIC increase, further cost-of-living help may come in the form of major cuts to VAT. This could be actioned by removing VAT from energy bills, as well as the existing commitment to remove the Green Levy, or may even include a significant reduction in the main rate of VAT (rumours suggest the headline rate could go as low as 15%). This would be a costly move but a VAT cut may just help to further change ‘inflation expectations’ and have some short-term impact on family finances.

Another Truss proposal to help family finances relates to the transfer of personal allowances between married couples and civil partners. Currently, where an individual does not have enough income to fully use their personal tax allowance (currently GBP 12,570), they can elect to transfer GBP 1,260 to their spouse/civil partner. She proposed that the full allowance should be transferable to help couples where one spouse is the sole earner. 

No more windfall taxes so where will the money come from?

One of the key issues on the table for the new PM is not only tackling the energy crisis, but the growing public distaste for soaring energy company profits. While former Chancellor Rishi Sunak enacted a windfall tax on energy profits early in the year, Liz Truss has argued strongly against the windfall tax on energy companies and ruled out any extension of it (for prior coverage, see the article in the August 2022 issue of Corporate Tax News).

It will be left to the Chancellor to announce the cost of the Energy Price Guarantee as part of his Emergency Budget and set out how the government will finance that cost. How much room that leaves to announce the tax cuts promised by the PM and still balance the books (eventually) remains to be seen.

Truss has argued that tax cuts will help to generate growth in the economy and, therefore, may pay for themselves in the long run, although it is widely accepted by economists that they will increase government borrowing in the short term.

She has also promised to squeeze out Whitehall waste, although it seems that a return to “austerity” across all public finances (just so that tax cuts can be delivered) is not explicitly envisaged.


Many commentators suggest that that cutting taxes (and increasing government borrowing) at a time of high inflation is risky: the total national debt is already forecast to be 95.5% of the UK’s GDP in 2022/23, and interest costs on the debt will rise as interest rates are increased by the Bank of England to tackle inflation. As a parallel, few businesses would seek to invest during in difficult economic times with many choosing to preserve cash balances and not take on new borrowing unless absolutely necessary.

In conclusion, this is a high-risk strategy for the economy and will give businesses much food for thought and cause to rethink their short and medium-term plans.

Jon Hickman