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Highlights:
- Liz Truss' campaign opened and closed with tax cuts as the way out to the cost-of-living crisis.
- There have been concerns that huge tax cuts will increase the government debt.
After weeks of hustings and campaigning, Liz Truss has defeated former Chancellor Rishi Sunak to replace Boris Johnson as the UK prime minister. Truss will be officially appointed as the PM by the Queen on Tuesday.
Truss and Sunak spent the last few weeks roaming around the country, convincing Conservative Party members why they are the best fit for the role. Both pledged to provide relief to Brits from high inflation but proposed different paths to support them.
Liz Truss started her campaign with tax cuts and ended it on the same note as a solution to the rising cost-of-living crisis. Now that she has been announced as the new PM, tax cuts could be the government's headline response.
Tax cuts dominated her speeches during the campaigning, including slashing VAT to 15%, reverting the National Insurance rise announced recently during Boris Johnson's tenure, and suspending green levies on energy bills.
These measures will bring some relief to the households as they will pay less of their income in taxes. But sceptics believe they will not be particularly beneficial for those who need support most. Moreover, the higher income also means they benefit more from lower national insurance.
On the other hand, those earning a low income pay the least tax, so that they won't get huge benefits from these tax cuts. This means that without targeted support for the low-income group, there's a risk that it'd lead to more inflationary pressures. Truss has suggested that vulnerable people may get more targeted support to deal with the cost-of-living crisis.
Widespread support
While people in the lowest income group will be hit the hardest, rising energy bills and warnings of a recession will push more people further up the income scale into financial difficulties.
As per think tank The Resolution Foundation, real household income may slip 10% or about £2,800 in the next two years if there are no changes to the policy. This would be the biggest two-year decline in the last century.
This also means that a majority of Brits require more widespread support from the government, and it will be extremely challenging for the government to offer such kind of support and cut taxes simultaneously.
