Please see below an article from Waverton Investment Management which was published and received earlier today (02/09/2022) and provides some insight on what to expect from a Liz Truss Government:
Tim Shipman, Chief Political Commentator at The Sunday Times, spoke to Waverton clients on the likely outcomes of the recent Conservative Party leadership vote.
It is expected that Liz Truss will prevail over Rishi Sunak when the results are announced on Monday 5 September, and Tim was able to talk with great insight about the possible implications of this change of leadership.
Liz Truss would be the fourth Prime Minister in six years, although she was initially felt to be an unlikely candidate to win the Conservative leadership by the media and her parliamentary peers, she is in fact an experienced candidate with a long track record in the cabinet. She does not fit the stereotype of Conservative leaders, having been raised in Scotland before moving to Leeds in a comparatively left-wing family. Indeed, her father is reported to be undecided as to whether he would vote for her, her mother though “probably will”. Her upbringing seems to have contributed to a relatively flinty character with a lot of backbone. She is quite self-contained and she has endured ups and downs in her political career already.
It is hard to know exactly what her plans are, assuming that she wins, but there are a few policies that she has put forward; it is expected that there will be no new taxes and that she will symbolically reverse the national insurance rise. She has also said that there will be no energy rationing – which went against the expectations of some of the other members of her party. She is expected to look at cutting business rates and potentially provide additional support to small businesses, many of whom are suffering with the current high cost of energy. A temporary cut to VAT is also being discussed – which they are said to believe will help to limit inflation. There is a non-zero chance that once in office the next prime minister will declare that the situation is far worse than expected and follow a different path to the one on which they ran.
There is little doubt in Whitehall that the next 18 months are going to be tough, the Brexit issues rumble on, as they did for Johnson, and there is elevated inflation as in the 1970s. Thankfully, for now, the labour market remains strong, though that is not a given. There is talk that there might be a more front-and-centre approach to dealing with the cost-of-living crisis (as with the Covid pandemic), with regular briefings and a task force. There is also talk of having a Cost-of-Living Minister.
While there will be some work on the leveling up program, the first few weeks are likely to be dominated by the economy. An emergency budget is expected on 21 September, right before the Labour Party conference. Despite how serious the problems caused by the cost of energy may prove to be this winter, the political process is probably too slow to react in time with new measures. One solution is to adjust the value of the payments that are expected to go out this autumn. Alternatively help could be directed via Universal Credit. Estimates suggest that she will need to borrow significantly further to fund her economic plans.
The timing of the emergency budget means the Labour Party are left in an interesting position. They were reportedly caught off guard by the rise of Truss, though are able to challenge her ideologically. Their plan was to cleanse the Labour Party’s image, introduce Starmer to the public and provide coherent resistance to the government, as they slowly start to look like a serious government in waiting. Starmer is struggling to cut through with the public but is expected to make an important speech at the end of September. Truss can probably expect a bounce before the polls settle to a new equilibrium.
The appointment Liz Truss would be most likely to make is that of Kwasi Kwarteng to Chancellor of the Exchequer. Suella Braverman is leading the race to be Home Secretary and James Cleverly is frontrunner to be Foreign Secretary. It is expected that Iain Duncan-Smith will play a more prominent role again, as will the Thatcherite John Redwood most likely in the Treasury, where he may well be joined by Jacob Rees-Mogg. Perhaps the two most watched of her colleagues will be Rishi Sunak, who is expected to turn down a cabinet job should he be offered one and has said that he intends to remain as a backbencher (though he has not convinced everyone that this is his long-term plan), and Boris Johnson, who is likely to find that his every word is pored over on all fronts.
A trip to Ukraine is likely to be first on the travel agenda, as Truss seeks to provide continuity from Johnson’s stance. She is also believed to be very keen to visit the White House, though the Biden administration is reportedly less excited at this prospect. It may be that a trip to Dublin to discuss the Northern Ireland border would help pave the way to visiting Washington. Relations with Scotland are not good, but not likely to be any worse than under Johnson.
While we at Waverton acknowledge the importance of the new Prime Minister, as global investors the proportion of UK exposure is comparatively low within our portfolios. The Prime Minister can have a significant impact on the UK financial markets, particularly via changes in investor sentiment initially, but the global economic environment is often the larger factor. We will continue to monitor the potential impacts of the changes in Downing Street closely and are able to adjust our positions as the situation develops.
Please continue to check our Blog content for advice and planning issues and the latest investment, markets and economic updates from leading investment houses.
Carl Mitchell – Dip PFS
Independent Financial Adviser
02/09/2022