With inflation at 10.1%, energy prices soaring, the UK on the brink of recession and an ongoing war in Ukraine, Liz Truss faces an overflowing inbox of crises to tackle as she steps into Number 10.
Truss beat Rishi Sunak to the post with victory in the Conservative leadership race, although by a smaller margin than many were expecting. She received 81,326 votes to Sunak’s 60,399, giving her a 57% share.
Business groups now want to see the new prime minister act quickly to protect small businesses, find a solution to the energy crisis and set the country on a path to economic recovery. This is even more important as new figures show the UK is on the brink of recession, with data from the S&P Global and Chartered Institute of Procurement and Supply (Cips) showing a decline in manufacturing output in August and weaker activity in the services sector.
The monthly survey of purchasing managers fell to 49.6 last month, from 52.1 in July. A figure above 50 suggests private sector activity is increasing.
The Confederation of British Industry’s director general, Tony Danker, accepts that it is an “extraordinarily difficult time” to take over leadership of the country but highlights that the most pressing concern is providing economic support for “struggling households and firms in jeopardy”.
He adds: “This may not be the pandemic, but the exceptional circumstances we now face mean government must play a central role in supporting our economy.”
Any plan for growth must be “bold, unconventional and rooted in the very real opportunities that still exist for the UK to thrive”, according to Danker.
Tax cuts to come?
Last week, The British Chambers of Commerce (BCC) predicted that the UK economy will enter a recession this year. It called on the government to introduce an emergency grant to help businesses with energy costs, a temporary cut in VAT on energy bills to 5% and a reversal of the increase in national insurance contributions.
On the announcement of Truss as the new prime minister, chair of the BCC Sarah Howard says: “Like households, firms have been telling us of unsustainable rises in their energy bills and how difficult it is to find new fixed term contracts to buffer against further price hikes.
“Unless the new prime minister addresses these problems head-on, the economy will drift further into dangerous waters and the outlook for both businesses and consumers will be bleak indeed.”
Small businesses are crying out for a comprehensive response which cuts taxes, limits spiralling bills and provides direct cash support for the smallest businesses
In her victory speech, Truss reiterated her intentions to cut taxes and grow the economy – a move that has been welcomed by business groups that are seeing the outgoing costs of their members soar. The Federation of Small Businesses, which represents the 5.5 million SMEs that make up 99% of the UK economy, says its members are facing “soaring energy costs, sky-high taxes, rampant inflation and supply chain disruption”.
The organisation’s national chair, Martin McTague, says: “Small businesses are crying out for a comprehensive response that cuts taxes, limits spiralling bills and provides direct cash support for the smallest businesses.”
He is also calling for Truss to reverse the recent hike in national insurance and for her to explore ways to stop small firms having to pay business rates.
UK corporation tax currently stands at 19% – lower than the OECD European average of 21.7% – and had been planned to rise to 25% from 1 April 2023, in line with France and Spain.
Preventing a ‘bonfire’ of workers rights
Addressing the cost-of-living crisis, which is affecting both individuals and businesses, was also listed as an immediate priority by the Chartered Institute of Personnel and Development.
However, it also sought to warn Truss of tinkering with workers rights, after it emerged that she was considering a review of the 48-hour work week, originally adopted as part of the EU working time directive. It’s believed that current rules around work breaks and holiday pay could also be amended in a bid to make the UK more productive and competitive.
Ben Willmott, its head of public policy, says: “The new government should strongly resist any temptation to water down employment rights and protections for workers. The UK is already one of the most lightly regulated labour markets among developed economies, with above-average employment levels and a high proportion of workers in permanent employment.
“Business surveys consistently show that the UK’s SMEs don’t see employment regulation as a significant impediment to growth, which strongly suggests that any push to deregulate in this area would be an unnecessary and potentially damaging distraction.”
Instead, he suggests that the new cabinet should focus on “delivering on previous commitments to reform labour market enforcement and support the creation of more flexible workplaces” to raise employment standards and create more better-quality jobs.
One of the main reasons for low business confidence in the UK economy is political instability, second only to inflation
It has also been suggested that Truss will seek to make changes to UK trade union laws, which would raise the threshold for the number of votes needed for industrial action to go ahead.
Current rules mean ballots on industrial action need at least a 50% turnout for the strike to be legal, while workers who deliver “important public services” must also reach a 40% vote threshold among all workers for a strike to take place.
Sharon Graham, general secretary of Unite the Union, the second largest trade union in the UK, says: “At a time when we face a national pay cut, the prime minister should be taking on the corporate profiteers that are pushing up prices, not workers fighting to stand still.
“Attempts to place effective industrial action outside of the law are a direct assault on the democratic rights of the British people and will be met with fierce, prolonged resistance.”
Irrespective of their preference of successor to Boris Johnson, many business leaders will simply be happy to see a leader at the top of government after a prolonged leadership contest.
The Institute of Directors director general Jonathan Geldart says: “With businesses facing real difficulties and feeling apprehensive about the prospects for the UK macroeconomy, our members have expressed their concern about the lack of a clear direction. Our data shows that one of the main reasons for low business confidence in the UK economy is political instability, second only to inflation.”
He now hopes that today’s decision represents the end of the recent political uncertainty.
