Liz Truss – The new British Prime Minister: the reactions of wealth managers

The UK has a new leader of the Conservative Party and a new Prime Minister in the person of Liz Truss. She has a very full set of challenges to overcome. Energy prices, the Northern Irish border issue and the state of the NHS are just three of the most pressing issues.

Liz Truss took over as leader of the Conservative Party and is therefore now Prime Minister, succeeding Boris Johnson who was ousted this summer after months of dissatisfaction with his performance in office. Truss faces enormous challenges: soaring energy prices and high inflation; a dysfunctional national health service; a large influx of immigrants across the Channel; the highest tax burden since the early 1950s and the problem of the Northern Irish/European Union border. That said, the opposition Labor Party, while it has gained in the polls, has yet to topple a large Tory majority in the next election, which is due to be held by 2024.

Truss has spoken in his campaign about the need to cut taxes and foster enterprise, which should be standard fare for a Conservative, but it has raised concerns about rising public debt. Truss and his allies have advanced the “supply-side” argument, claiming that lower taxes stimulate growth, although it remains debatable whether tax cuts at some point can be afforded. themselves.

Here is a list of reactions from wealth managers.

Samuel Mather-Holgate, Independent Financial Advisor at Mather and Murray Financial
Truss has a huge to-do list. She will want to travel to Ukraine and show her support there, as well as make calls to Biden and the EU, as the Northern Ireland Protocol will likely dominate her tenure. However, energy cost will be its number one priority. It will be interesting to see who Truss surrounds himself with at the firm. Chancellor will be a massive date for someone, and we all think it will be Javid. What will it do to support households? I think the £400 ($460.7) direct payment on bills will be doubled.

Graham Cox, Director of
Liz Truss certainly has her work cut out for her. I think she has the generally good idea that taxes need to be cut. We cannot force our way out of our mountain of debt, we must grow the economy aggressively. This means increasing personal tax allowances, reducing income tax, and reversing National Insurance and corporation tax increases. The elephant in the room is offshore corporate tax avoidance. We could transform the economy and the standard of living if we were to finally seriously tackle this problem, rather than allow it. In the short term, Truss has to deal with the cost of living crisis. A freeze on the energy cap seems to be the only way out, because we simply don’t know how expensive energy will be or for how long.

Philip Dragoumis, director and owner at Thera Wealth Management
It will be impossible for Truss to deliver on all of his tax cut pledges while at the same time announcing a government package at least as big (if not bigger) than that announced by Keir Starmer to help people cope with rising taxes. energy costs. The UK government bond market has recently been very concerned that the Truss government would be fiscally irresponsible and blow up public finances. Government 10-year borrowing costs climbed to almost 3% from 1.6% in July. We need immediate clarity on the support package, but also a clear promise that finances will not derail or borrowing costs will spin out of control.

Schroders UK equity specialists Sue Noffke, Andy Brough and Jean Roche
UK households will face income compression on several fronts in the months ahead. Double-digit inflation is expected by the end of 2022, alongside double-digit declines in discretionary spending, as the near doubling of wholesale gas prices since May 2022 feeds through to retail gas prices. energy paid by British households. The median UK household income (after tax) is £31,400: an increase of £1,500 in a typical household’s energy bills represents around 5% of annual income. The rise in mortgage costs should be of a similar magnitude.

So far in 2022, household disposable income has increased due to a buoyant labor market and reduced savings accumulated during the Covid shutdowns. Grocery chain ASDA’s revenue tracker (which started in 2011) shows a year-on-year drop for July 2022 of 16.5% in UK household income (excluding bonuses) after tax and spending in essential items. This equates to a loss of £40 per week. It is likely to fall much further.

The savings built up during the pandemic – estimated at £190billion – are not evenly split between households. Low-income households typically have little or no savings, and poorer households will feel the pressure more strongly than middle- or high-income households. Almost a quarter of all households have no savings and a further 9% have savings of £250 or less. With inflation likely to rise above the 13% peak projected by the Bank of England (BoE), workers will be no better off by mid-2023 than they were 20 years earlier (according to a Resolution Foundation study).

Chris Beauchamp, chief market analyst at IG Group, the trading platform
On the political level, it must ensure the grip on the energy crisis which was lacking during the summer. But she will face a row with the EU over Northern Ireland and will have to deal with these issues while battling a resentful Tory party, with only a third of the party backing her. It thus risks exposing its flanks to a leadership challenge, either on the basis of an easing on Brexit or a failure to resolve the energy crisis. It will be a short honeymoon period.

On the market side, there was little reaction since the announcement was almost inevitable. But with the pound wallowing against the dollar, it’s clear markets aren’t too optimistic about the UK’s outlook. Perhaps a big enough support package could earn it a reprieve, but investors will be watching closely.

Dolores W. Simon