View from Whitehall - July 2022

20 July 2022

Over the last week or so, we’ve been privy to the spectacle of members of the same political party calling one another out in a bid to become Prime Minister. At last we’re down to the final two candidates for the Conservative Party membership to choose their new leader. What impact will the election of either Rishi Sunak or Liz Truss have on FLA markets?

As was apparent from the televised leadership debates, Rishi Sunak, the former Chancellor, is regarded as the Establishment figure. If he wins, then hopefully that means that the Government’s recent pledges to review the Capital Allowances regime and reform the Consumer Credit Act (CCA) are honoured. The one caveat would be the natural tensions that exist between a PM (in Sunak) and his Chancellor. Sunak remains committed to a deregulatory approach to financial services legislation as a post-Brexit dividend (though it is unclear what this means in practice). In his Mansion House speech yesterday, the new Chancellor, Nadhim Zahawi, suggested a continuation of Sunak’s policies of curbing inflation and overhauling regulation.

A Sunak Government would also pursue the goal of the UK to becoming “the world’s first net zero financial centre.”  A Sunak Government could also lead to the possible reappearance of one of his leadership backers, John Glen, (responsible for the CCA reform decision), returning to the Treasury team.

Liz Truss goes into the two-horse race as the bookies’ favourite to win the vote of the party membership. Pitching herself as the only candidate “with a clear and credible plan for economic growth”, she has vowed to cut personal taxes from her first day in office (with Sunak’s 2.5% increase in national insurance her first action), and likely reverse much of the former Chancellor’s corporation tax rises, which could have implications for reform of capital allowances. Truss has undergone a damascene conversion from a Lib Dem in her youth to a Conservative, and latterly a remainer turned standard-bearer for Brexit. She has used her platforms as International Trade Secretary (where she promoted the City of London as a global financial centre) and Foreign Secretary to bang the drum for the opportunities now that the UK has left the EU. As a free-marketeer, she is unlikely to be supportive of Government incentives to support the development of a market for green assets, including low emission vehicles. Although committed to net zero, she has campaigned on temporarily removing the green levy for households and businesses.

While many Conservative party members may have already made up their minds, the outcome is far from certain. The summer campaign will test the candidates, and perceived missteps or new policy proposals could well determine who gets the keys to No. 10.

Published 20 Jul 2022