Truss urged to cut fuel duty and cap energy bills

With votes in and Liz Truss elected as the new Prime Minister, many may have the question “what now”?

 When it comes to our taxes, RIFT Tax Refunds has laid out what we can expect from our new PM, as well as urging her to remove fuel duty for 12 months and cap energy bills at £1,1750 for the next year, if she wants to help the average UK household.

Battle between MP candidates

After a squabble between Sunak and Truss as the rather limited choice of leader provided to the Conservative Party rank and file, Truss ultimately crushed Rishi Sunak with 57% of the membership vote. This is a far lower share of the vote than Boris Johnson, Theresa May, David Cameron, or even Ian Duncan Smith before her.

Nonetheless, after weeks of uncertainty, at least we now have a fresh face and undoubtedly some renewed policies about to emanate from Downing Street.

When not tearing lumps out of each other, the candidates have made a number of promises and not least around taxation. Rishi Sunak on the one hand didn’t seem very motivated to do much at HMRC level at all as yet, however, Liz Truss has been fairly bold with her promise to slash the following:

• National Insurance – a return to pre-Sunak levels, reversing his hike in April

• Corporation Tax – ditto

• Reduction in VAT from 20% to 15%

• Doing away with Green Levies within consumer and business energy bills

• Capping electricity and gas bill increases

• Increase Married Tax Allowance

So, what’s the cost to the Treasury?

• National Insurance - £13 billion

• VAT - £38 billion

• Corporation tax - £19 billion

• Energy Bills – Unknown, dependent on how, and by how much

• Green Levies - £11 billion

• Married Tax Allowance - £7 billion

Guarantees, or attractive baiting?

So, that’s a package of measures that tots up to £88 billion each year, along with whatever the energy bill cap methodology works out to. Add another £49 billion if this is proposed as having the current energy cap level for each of the UK’s 27.8 million households.

£137 billion – that’s greater than the government budgets for education, defence, and justice combined every year. Therefore, within three years, Prime Minister Truss will have presided over an increase in the deficit of £400 billion – about the same as the pandemic cost us.

What’s problematic is that, apart from the enormity of the borrowing that this will entail and at a higher money cost than in years, much of this will not even target those that need the support the most.

In fact, tax cuts to businesses and NI reductions to ordinary taxpayers will miss most of the vulnerable within our population that do not even pay tax. An estimated 3.5 million couples now cohabit rather than as married (up 137% since the 1990s), and VAT cuts would also benefit bigger spenders more than those with meagre budgets.

A simple solution suggested

RIFT has suggested two possible resolutions, namely removing petrol and diesel duty for 12 months which will cost £26 billion, along with capping household electricity and gas bills at £1,750 for 12 months, which will cost £50 billion.

Amounting to almost half the cost of Liz Truss’s proposals, £76 billion ultimately targets all households and all car users. Proportionately, this move would ultimately benefit those that are less well-off much more significantly.

Importantly, the cost of food and consumer goods has escalated largely due to transport costs which have risen starkly. Reducing fuel duty leads to a reduction in transportation costs and consumer goods costs too, therefore applying respite across the high street and, in turn, lowering inflation.

A win-win.

In RIFT’s opinion, their proposal represents much more bang for the new Prime Ministers' buck. This could also very possibly be a political conquest as the parties venture toward a general election too.