On 5th September the new Conservative Party leader, and the next British Prime Minister, will be announced. It’s a time of great economic uncertainty and it’s put the candidates’ differing approaches to economic policy under the spotlight. So, what are their policies? And which candidate would be best for business?
Liz for leader?
Liz Truss’ big idea to revive the economy is £30 billion of tax cuts, which she’s pledged to introduce from day one. She says she has “a bold economic plan that will cut taxes, grow the economy and unleash the potential of everyone in our United Kingdom”. As part of her plan, Truss will reverse the National Insurance increase introduced in April and overhaul business rates as well as put a stop to the rise in Corporation Tax slated for next year.
In an article in the Telegraph on 10 July Truss wrote: "It isn't right to be putting up taxes now. I would reverse the National Insurance increase that came in during April, make sure we keep corporation tax competitive so we can attract business and investment into Britain, and put the Covid debt on a longer-term footing."
Truss has also promised to help stimulate investment by setting up low-regulation investment zones to create hubs for innovation and enterprise. Calling these the “full-fat” version of Rishi Sunak’s existing freeports, Truss says these investment towns will offer lower taxes to incentivise investment and construction as well as side line planning restrictions to speed up development.
In a nod to labour shortages Truss has also proposed a “short-term expansion” on the seasonal workers scheme allowing more foreign workers to temporarily work in the UK. However, this won’t ease the burden on many businesses as the scheme only applies to the agricultural sector.
Despite the Foreign Secretary previously voting to stay in the EU, Truss is calling for “a red tape bonfire” of EU laws by the end of 2023. She says this will
unleash the full potential of Britain post-Brexit, and accelerate plans to get EU law off our statute books so we can boost growth and make the most of our newfound freedoms outside the EU.”
However, critics have warned that a greater divergence from EU law would create further barriers to trade, and that’s on the assumption that an already stretched civil service would be able to meet her deadline for reviewing 2,400 pieces of legislation.
Or ready for Rishi?
Meanwhile, Conservative party leader hopeful, and former Chancellor, Rishi Sunak, has pledged a different approach to tax cuts from that of his rival. He’s described Truss’ plans as “immoral” and says we first need to get a grip on inflation:
We have to tell the truth about the cost of living and that there is no answer to this problem other than to grip inflation and bring it down. Rising inflation is the enemy that makes everyone poorer and puts at risk your homes and your savings."
Instead, in what he calls a “radical tax vision”, Sunak has committed to cut the basic rate of Income Tax from 20 per cent to 16 per cent by the end of the next parliament, as well as to stick with plans to increase Corporation Tax in 2023 and keep National Insurance at its current level.
The change to corporation tax rates, which he announced as Chancellor, will see small businesses with profits below £50,000 continuing to pay 19 per cent in tax with a taper introduced to businesses earning more. The new full rate of 25 per cent will start being paid on profits above £250,000.
At the same time as corporation tax is set to rise the “super-deduction”, introduced by Sunak to help businesses offset investment against tax, is due to come to an end in April next year. In his Mais lecture, given at the Bayes Business School in February, the then-Chancellor, said a priority for him would be to prioritise tax cuts on business investment when devising a future tax strategy. It was widely expected that an announcement on investment allowances would form part of Sunak’s Autumn budget but no announcements have been made as part of his leadership campaign.
In a bid to support businesses in the hospitality and retail sector, Sunak has also promised to extend the current 50 per cent reduction to business rates. He says that supporting business on the high street is “top of mind” and that cutting business rates is “the number one thing that makes a difference.”
And when it comes to law reform, Sunak takes a similar stance to Truss, vowing to take back control of law making to give Britain a “competitive economic edge”. He’s pledged to reform or scrap remaining EU rules “getting in the way” of business by the next parliament.
So who is best for business?
There is no universal consensus here. The Federation of Small Businesses believes the current favourite, Liz Truss, would be best for small and mid-sized businesses. According to the non-party political organisation, her plan to reform business rates is a policy that would boost small and medium-sized firms – despite a lack of detail as to what her overhaul would entail. While some have criticised Truss for her tax and spending plans, economist Liam Halligan, writing in the Telegraph on 24 July, suggests her strategy is the better plan.
The Financial Times, in contrast, has rated Sunak slightly ahead of Truss for start-ups, flagging his promise of tax breaks for research and development. Writing in the Guardian Simon Jenkins considers Truss and Sunak cannot both be right with their starkly different policies and quotes a YouGov poll suggesting the great majority support Sunak’s solution. Meanwhile the Times claims Truss’ tax breaks would actually cost £80bn, not the £30bn she has claimed.
Philip Salter of The Entrepreneurs Network has highlighted some of the policy differences. The post includes links to handy policy trackers showing the candidates’ different positions.
One thing is clear. As at the date of publication of this article, Truss is a significant favourite with the bookies, and to remain in business the bookies need to be right more than they are wrong. However, with pressure mounting on the candidates to outline how they will deal with the cost of living crisis a lot could change between now and 5th September.