The political impact political leadership change has on finance and personal finance

The political impact political leadership change has on finance and personal finance
13th October 2022

The political impact political leadership change has on finance and personal finance

“A difficult time can be more readily endured if we retain the conviction that our existence holds a purpose – a cause to pursue, a person to love, a goal to achieve” – John Maxwell

History has shown that every century has always presented twists and turns, whether it be through pandemics such as the Spanish flu (1918-1920) and Covid 19 (2019-present). Or through economic downfall because of the effects of wars on the economy, such as World War 1 (1914-1918) and World War 2 (1939-1945) or the 2008 recession.

The 21st century has presented its own challenges, such as covid-19, with many such as Boris Johnson not expecting to see a pandemic in their lifetime being stopped in their tracks by the significant impact covid-19 has had on the economy, health and everyday life.

Financial circumstances such as Savings and wages are also affected by several political factors, such as political uncertainty like Brexit and changes in leadership; the short-term and long-term effect of political changes has left uncertainty as to how the UK's future will take shape and whether the changes will ultimately have a beneficial or detrimental impact on the economy. Moreover, Political changes can also determine the pound’s value; this means that changes can potentially make the pound go up or down in value.

Furthermore, the value of the pound can also be affected by savings. For instance, when interest rates are increased, savings or investments are more appealing, as you get more of a turnover on your money. Therefore, demand for the pound rises.

Inflation can also influence savings, which decreases the pound’s value, affecting investment returns.

Financial Services are a critical part of the economy and allow ‘consumers and businesses to invest, share risks, borrow, and transact’ (Sunak, 2021) during stable and unstable times. The UK has had an open, international financial infrastructure for a long time.

Political leadership can affect how finance and personal finance take shape as different candidates can implement and prioritise different strategies that affect the financial realm. For instance, Former Chancellor Rishi Sunak, who was also pledging for the Prime Minister position, claimed he was backing reduced taxes as well, but first, he wanted to ensure that inflation was under control and would have concentrated more on personal taxes than business taxes. This would have meant that there would not have been much help in the near future surrounding the cost-of-living crisis other than the current £15 billion of assistance announced by Mr Sunak while he was Chancellor, which would be offered as grants for energy bills for those on low salaries.

Next year Mr Sunak would have increased Tax prices which might have made the UK less competitive for businesses; however, the purpose behind this would have been to reduce poverty worsened by the pandemic.

He also planned to review the EU regulations, which are part of UK law, which could see adjustments to policies across several areas that affect personal finances, such as the construction of houses.

Liz Truss, announced as the next prime minister on 5th September claimed during her pledge that she would make significant deductions to increase growth. Tax cuts are usually implemented at the beginning of a financial year; however, she has also said that she will have an emergency budget.

The two main pledges are to reverse the 1.25% increase in National Insurance which was applied this year and to put a temporary hold on the green tariff on energy costs, which UK regulator, Ofgem, estimates to be adding to between 9% and 12% of the price of electricity bills.

Ms Truss also claims she would scrap corporation Tax due next April, where the primary rise would be from 19% to 25%, which she actually did !

Although lower taxation and some lessening of high increases in energy bills this winter would be seen as a positive thing by many such as businesses, tax cuts will eventually need proficiencies to be found within Government spending or increased borrowing, which would each have an impact on the economy.

The fiscal stimulus would disrupt the current agreement between the government and the Bank of England, as the government is attempting to decrease the inflation rate by raising interest rates and withdrawing financial stimulus. A possible outcome of this could be that the Bank of England might take a more aggressive approach to rate increases, compensating for some of the stimulus impacts of tax cuts.

However, if inflation is not dealt with promptly, this could be detrimental to inflation which would not be ideal for bonds, as the value of bonds is eroded by inflation if persistent.

The last few decades have been some of the most challenging for both the UK and globally, with belief in previous leaders such as Donald Trump and Boris Johnson diminishing the trust of its citizens further in the governments in charge of making the decisions. Now that Liz Truss is Prime minister, it will be interesting to see how the following political chapters will be unveiled. Will she keep her promises? And will predictions of the impact of what she said she wanted to implement during her pledge for candidacy be accurate, or will things move in a completely different direction to what was previously anticipated?