Rishi vs Liz, what will they mean for your money?
As the Conservative Party chooses our next Prime Minister, our bank balances wait with bated breath to discover what is in store for them.
Although neither Rishi Sunak nor Liz Truss can do very much about the external factors affecting the cost of living at present, they have radically different views about how to tackle them. As such, whoever wins this contest will affect our finances in the short term.
Here is what we know about their different policies.
Rishi – standing firm on tax
Despite rising prices, Rishi Sunak, the former Chancellor, has said he will not cut taxes. In his launch speech he says that his policies rest on “Honesty and responsibility… not fairy tales…”
He believes that cutting taxes will cause further inflation, and instead says that “once we’ve gripped inflation, I will get the tax burden down.”
Although he says that this is a “question of 'when' not 'if” he will do this, it may seem too late for some struggling under the burden of increased National Insurance this year.
However, in the long run, it is possible that some of us may be better off under Rishi. A recent poll of economists from Bloomberg suggests that there would be quicker interest rate rises under Sunak than under Truss – bad news for those in debt, though better news for savers1.
Also, if it takes longer for inflation to fall, those of us with cash savings will quickly find our savings are worth less.
When it comes to dealing with spiralling heating bills, Rishi is all about the insulation. If you’ve a draughty home, you might find there is support there to help you improve your energy efficiency2.
Liz – preparing to cut
Liz Truss has already indicated that there will be an abrupt U-turn on tax if she wins the leadership contest.
That means reversing the recent rise in National Insurance that was introduced in April, as well as a recent increase in corporation tax on businesses. She would do this from next April.
She wants to bring down energy bills by suspending the ‘green levy’, which is the part of your bill that pays for energy-efficient initiatives.
However, as economists have warned, cutting taxes could lead to higher inflation, and then the Bank of England would have to raise rates to deal with this, leading to more expensive debt on mortgages, but higher rates on savings (although with inflation high these would be quickly eroded away).
What happens next?
Most of us have little say in whether Truss or Sunak will take the top spot. This will be decided by Conservative Party members, and it’s hoped we will know by September 5.
Whoever is in 10 Downing Street could then be in post until January 2025, meaning that they will have a significant amount of time to affect our personal finances3.
With two possible leaders showing two very different approaches to taxation, the only way most of us can be prepared is to ensure that we pay down as much debt as possible, to avoid rising interest rates, fix any mortgages we can, and prepare our finances to be as resilient as possible in the case of a coming storm.
Whether tax is cut slightly or remains very high, there are steps that many of us can take to reduce our individual tax burdens and speaking to a financial adviser may be the best place to start.