Liz Truss was elected as the new Prime Minister of the United Kingdom on Monday. She defeated former Chanceller Rishi Sunak in the contest.
Truss, who currently holds the portfolio of Foreign Secretary, had dominated the contest in the recent weeks. A report said that while Sunak emerged as the frontrunner initially after Conservative Party MPs supported him, the rank and file of the party rallied behind Truss, paving way for her victory.
Against Sunak's approach of targeted relief measures, Truss pledged to cut taxes and reverse tax hikes introduced by Sunak as chancellor. Truss is now expected to move fast on her promises to tackle the 'cost of living' crisis in UK which has emerged as the biggest challenge in the country. It also dominated the prime ministerial race.
The fact that Truss is considered to be a loyalist to outgoing Prime Minister Boris Johnson is also believed to have favoured her. A survey last month suggested that voters still preferred Johnson, with 55 per cent of those surveyed saying that he was being unjustly ousted.
Here we explain what's the UK 'cost of living' crisis, what's Liz Truss's plan to tackle it, and how these plans are seen by experts. We also explain the political journey of Truss.
Who is Liz Truss, New UK Prime Minister?
Liz Truss is the third woman Prime Minister of the United Kingdom after Margaret Thatcher (1979–90) and Theresa May (2016-19).
Though she is now the Conservative Party Leader, she was not always a Conservative. She began as a Liberal Democrat, the fourth major party in the UK after the Conservative, the Labour, and the Scottish National Party. As a teenager, she marched against Thatcher but she is now seen as carrying forward her legacy. This way, she has had quite a political journey.
Truss, 47, was born in Oxford to a maths professor father and a nurse mother. She grew up in various parts of the UK, which she also used to her advantage in the prime ministerial race by highlighting that she would work for all the regions.
Truss graduated from Oxford where she studied philosophy, politics and economics. She worked as an accountant for Shell, and Cable & Wireless. She joined politics later in her life and became an MP in 2010.
The BBC reported that "she had become a Conservative because she had met like-minded people who shared her commitment to 'personal freedom, the ability to shape your own life and shape your own destiny'. She is a believer in free market and a disbeliever of big governments.
The BBC further reported: "She co-authored a book, Britannia Unchained, with four other Conservative MPs elected in 2010, which recommended stripping back state regulation to boost the UK's position in the world, marking her out as a prominent advocate of free market policies on the Tory benches."
Before being the Foreign Secretary, Truss was an education minister, environment secretary, and Lord Chancellor and justice secretary, and international trade secretary.
What is the 'cost of living crisis' in UK?
The cost of living crisis, simply speaking, refers to the falling disposable income of people and rising costs such as of food and energy, including gas and petroleum. It is therefore linked to inflation that is ravaging many parts of the world, including the UK.
Rising energy bills, with the onset of winter not very far when people would need heating in the UK, is a grave concern at the moment.
One of the inflation trackers, the Consumer Price Index (CPI), is at 10.1 per cent currently in the UK, well beyond the preferred range of 1-3 per cent. This time last year, it was just 2 per cent. Estimates suggest that this is set to rise further.
"The latest Bank of England forecast has inflation peaking at 13.1 per cent in the fourth quarter of 2022. This is largely driven by the £693, or 54 per cent, increase from 1 April of the energy price cap and a forecasted further increase of 75 per cent in October," said the think tank Institute for Government.
This is driving more and more people towards loans for everyday needs as people are out of money. Forbes reported, "And more households are turning to consumer credit to make ends meet. Borrowing on credit cards is growing at an annual rate of 13%, according to the Bank of England’s Money and Credit Report for July – marking the fastest pace recorded since 2005. Across all forms of consumer credit, borrowing is growing at an annual rate of 4.5% – the highest rate since March 2020."
The rising debt among the people will make them vulnerable to future price rise and also poses the risk of debt becoming unsustainable.
Liz Truss's plans to tackle UK crisis
Liz Truss has promised tax cuts to the public. She has also promised reversing the tax hikes announced by Rishi Sunak as Chancellor. This might address one of the causes driving the cost of living crisis as the Institute for Government says it "has been further exacerbated by recent tax increases".
It further said, "The tax increases announced in 2021 were larger (as a share of national income) than those announced in any year since 1993...The income tax personal allowance and higher rate threshold will be frozen for four years from April, instead of increasing in line with inflation as planned. This amounts to a tax rise as many more people will be dragged into higher rates of tax as their incomes increase faster than the thresholds."
Truss is reversing these tax hikes of Suank. Yahoo Finance reported, "She has pledged tax cuts in the form of the national insurance rise being axed, corporation tax rises suspended, and green levies removed from energy bills."
Truss, a free-market advocate, would be a "pro-business" ruler who is expected to support businesses with their energy bills, which are expected to further support consumers and helps with costs. In line with these expectations, Bloomberg has reported that Truss is finalising a £40 billion support package to lower businesses' energy costs. It also reported that she would put caps on households' energy bills.
"Truss is considering two options, one of which is a cap on firms’ energy costs similar to a proposal that would protect British households. The other option is a percentage or unit price reduction that all energy suppliers must offer companies...The incoming government is planning on capping average annual household energy bills at or below the current level of £1,971," reported Bloomberg.
The households' cap move would "prevent household bills from jumping 80 per cent in October".
There are reports that an even bigger package might be on the cards. The Independent reported, "She is in talks with energy companies over a support package worth as much as £100bn to offset predicted rises in average domestic fuel bills from £1,971 to £3,549 in October and £7,000 or more by the spring."
Yahoo reported that Truss is also expected to do the following:
- cut inheritance tax and value added tax (VAT)
- put a moratorium on green levies
- cancel the corporate tax hike from 19 per cent to 25 per cent
- cancel windfall tax
- increase state pensions
Yahoo reported, "The state pension is expected to rise by a double figure percentage as inflation continues to soar, providing a bumper boost for older people.
Concerns over sustainability of Liz Truss's plans
There will be no honeymoon period for Truss as she would have to get on the job from the moment she is appointed as the Prime Minister of UK.
While the Conservatives have voted for her tax cut-laden approach to tackling the cost of living crisis, experts have raised questioned at it, asking that where would the money come from since she is also aiming at increasing spending with pension-hikes and subsidising energy.
Tax and financial planning expert Rachael Griffin told Yahoo that Truss might end up robbing Peter to pay Paul.
She said, "However, she has so far not put forward any proposals for how the planned social care reforms will be paid for without the increase. With huge energy price rises on the horizon it’s understandable to want to lower NI. However, scrapping the hike may well lead to a situation where Truss robs Peter to pay Paul if she wants to keep the planned social care reforms."
Conservative MP Kevin Hollinrake has also warned that Truss's focus on tax cuts rather than handouts would put low-income families "on the streets".
The think tank Resolution Foundation has said that Truss's plan has a big price tag and is "not a serious answer for the current crisis".
"Liz Truss's emergency tax and spending pledges could cost upwards of £60 billion a year, with experts warning they will fail to help the worst-off deal with the rising cost of living," noted Yahoo.