After almost two months of campaigning, Liz Truss became UK Prime Minister receiving 57% of the votes from Conservative Party members and beating former chancellor Rishi Sunak for the top job. The difference in votes between candidates was smaller than initially anticipated by political commentators and represents the lowest vote share for a successful candidate since the current system to elect Conservative Party leaders was introduced in 2001.1
The campaign was almost entirely focused on the UK’s rising cost of living and potential solutions to the country’s decelerating economy. Truss will now have a maximum term of over two years before the next general election which must be held before January 2025. In her first speech outside 10 Downing Street, Truss highlighted three key priorities for her government:
- Promote growth through tax cuts and economic reforms.
- Tackle the energy crisis in the country driven by Russia’s invasion of Ukraine.
- Support the National Health Service, with over 6 million people still waiting for treatments.
Regardless of the policies implemented to achieve these objectives, she could benefit from the very low expectations set for her government given the difficult economic environment she is inheriting. Opinion polls give the Conservatives only 32% of voting intentions, 10 percentage points behind Labour.2 Additionally, the Tories’ 75 seat majority in the House of Commons should allow Truss meaningful political flexibility to pass legislation.
Challenging domestic scenario
Truss has started her term as PM with the difficult task of dealing with a worsening domestic economic outlook, marked by the rising cost of living, a deterioration in public finances and difficult relations with workers’ unions. According to forecasts from the Bank of England, UK GDP is expected to decline in Q4 2022 and enter a recession from the first quarter of 2023. GDP is expected to contract between 1.5% and 2% in 2023. At the same time, inflation is expected to peak at 13% in Q4-2022 before easing back to single-digits in Q3 2023, assuming global energy prices stabilise and tradable goods prices decline.
Although there have been no official policy announcements yet, Truss is expected to:
- Reverse the rise in National Insurance Contributions of 1.25%, which was introduced by Sunak in April of this year. According to the Institute of Fiscal Studies (IFS), this would have cost £13 billion per year.
- Set a cap on household energy bills at about £2,500 for the next two years, helping to protect consumers from surging gas and electricity prices, see Figure 1.
- Cancel the planned increase in corporation tax from 19% to 25%, scheduled for next year, and oppose any further windfall taxes on energy firms, in a clear signal to attract investment to the UK.
- Review taxation of families and the use of tax allowances to tackle problems with affordability of childcare.