Sunak vs. Truss: who is best for small businesses?

It was only eight weeks ago that Boris Johnson was standing outside 10 Downing Street, announcing his resignation with an emotional and patriotic goodbye: “them’s the breaks”.

Since then –  while SMEs contend with one of the worst economic crises of their lifetime – the government has been searching for its new leader. There’s been thousands of televised debates, hundreds of headlines, and ten dropouts so far in the Tory leadership election.

Now, just two contenders remain to ferry the UK through an impending recession. On 5 September, either Rishi Sunak or Liz Truss will take up the post of prime minister, making them the fourth to do so in less than ten years.

Below, we’ve analysed each candidate’s proposed policies, voting histories, and previous stances to see which will be the better choice for small businesses come September.

Sunak vs. Truss: tax and spending

Perhaps the most pressing issue facing today’s small businesses is the rapid rise in inflation, which is currently threatening profit margins and sending overheads surging.

New tax pressures, such as an increase in National Insurance, have also added to SME budgeting woes. So how does each candidate fare when it comes to tax and spending?

As chancellor, Rishi Sunak oversaw the country’s finances throughout the pandemic. He was behind many COVID-19 support loans – several of which were praised. However, Sunak has also faced criticism for “ignoring” SMEs in the spring budget.

Should he be elected, Sunak has been careful to promise any big help measures. He says he plans to reduce taxes only “once we’ve gripped inflation”.

Truss has been much bolder with her outlined policies, with planned cuts to national insurance, corporation tax, and VAT. She says she will pay for these by spreading the UK’s debt from COVID-19 over a longer period.

Commenting on the two candidates’ attitudes to corporation tax, Lee Murphy, founder of The Accountancy Partnership, says: “Although tax cuts seem supportive for small businesses at first glance, reversing the corporation tax hike only really benefits high-profit businesses and increases competition as taxes don’t reflect the disparities in earnings.

“As well as failing to uplift small businesses, this level playing field would cost the economy around £11.9 billion in its first year and that money arguably needs to be recouped elsewhere.”

Verdict

Truss has gone all-in on financial policy with big announcements around tax cuts and budgeting. Her bold suggestion to cut VAT by a huge 15% would do a lot to help businesses fight rising prices.

But as Murphy points out, some of these policies will actually have a negative effect on small businesses, such as scrapping the planned rise in corporation tax.

Sunak’s policies look more realistic as a result – although many critics say they won’t be enough to deal with the hike in energy costs.

Sunak vs. Truss: cost of living crisis

Many business owners are under threat from the cost of living crisis, with consumers cutting back on spending and rising energy bills threatening employee satisfaction.

As a result, the topic has been high on both Sunak’s and Truss’ agendas – although there’s been few decisive statements made.

In the past, Truss has voiced her opposition to “handouts”. That said, a source on her campaign said she was keeping open the possibility of extra payments for all this winter.

Sunak has argued that doing so will only exacerbate an already-high inflation rate. However, he has shown he is not above making a U-turn after changing his mind on VAT cuts last month.

Verdict

Neither candidate wants to say anything too firm on the cost-of-living crisis. Instead, support will likely come into effect in October, alongside the new energy price cap.

Sunak wants lower interest rates, which will encourage more businesses to invest in expansion, but might worsen the rate of inflation. Truss, meanwhile, wants higher interest rates which will discourage consumer spending and help to bring the rate of inflation down.

Sunak vs. Truss: Brexit

In terms of Brexit policies, both candidates are focused on passing the Northern Ireland Protocol Bill. First introduced by Truss as foreign secretary, she claims it is one of her major achievements in government.

The bill gives the UK government power to rewrite large aspects of the original Brexit agreement to minimise controls on British goods entering Northern Ireland.

For Northern Ireland traders, it will have a big impact. They had to spend much of 2021 learning the complicated post-Brexit processes of importing and exporting goods, as well as educating Great Britain (and EU) suppliers and customers.

Naturally, the move has angered the EU, which sees the bill as a breach of international law, ensuring a continued blight on already sour EU-UK relations.

Verdict

Neither candidate has given a convincing answer to how they see the NI protocol issue being resolved. Truss’s hard-line Brexit stance has won over more Tory hearts than Sunak, who is viewed as being more pro-EU.

Sunak vs. Truss: sustainability

The UK has pledged to become net zero by 2050. Much of the responsibility for meeting this target has so-far been placed on the country’s 5.6 million small businesses, which have been asked to ‘lead the charge’ and halve their carbon emissions by 2030.

Implementing more eco-friendly practices will therefore be a shared goal for UK firms over the next three decades. With energy bills hitting astronomical heights, it will also be necessary to protect SMEs as the country diverts away from imported fossil fuels.

So far, neither candidate has paid much attention to the climate crisis in policymaking. Sunak has been all but silent on the issue, while Truss has largely downvoted measures to prevent climate change.

Verdict

If we are to grasp at a silver lining here, Truss’s policy of cutting the CCL might free up money for small businesses in eco-unfriendly sectors to purchase green technologies. Ultimately, however, neither candidate impresses with their sustainable policies.

Sunak vs. Truss: innovation

Prime minister Boris Johnson’s government, which included Sunak and Truss, was elected with a massive majority in 2019 on an agenda that promised to make the UK a “scientific superpower” and double public R&D spending.

Still, given the business world’s current focus on surviving the upcoming recession, it’s understandable that neither Sunak and Truss have given much attention to the issue of growth and investment.

Verdict

Not too much to shout about here but it’s Truss who seems to be doing the heavy lifting, with a perhaps overly-bold promise to foster more R&D in the UK through new ‘low-tax’ zones – potentially also supporting the government’s levelling up agenda.

Who do small businesses want as the new prime minister?

In short, deciding between Sunak and Truss can be summed up as choosing lower taxes or lower interest rates. Both contenders are focused on improving the UK economy; it’s their chosen methods that differ.

Next Monday, we’ll see who will get to enact their respective recovery plan. But before then, who are small businesses hoping to see put in power?

“Rishi knows best”

Polls show that Truss is currently the more popular option for Tory party members. But amongst SME owners, Sunak still has some favour.

For Firdaus Nagree, founder or furniture showroom, FCI London, the choice isn’t easy. He tells Startups that “[while] neither of the options are particularly ideal, Sunak does seem to be the better choice.”

Experience seems to be the main pull factor behind Nagree’s vote for the ex-chancellor. “Sunak understands the levers available far better than Truss because he has been working on them for the last few years,” reasons Nagree. “He also has the advantage of having been at the top table during a time of extreme crisis.”

Ishveen Jolly is founder and CEO of OpenSponsorship, an online marketplace for sports sponsorships. Jolly’s choice would also be Rishi Sunak – but for what she describes as a more “personal” reason.

“To see a PM from an ethnic minority background is a big deal,” she says. “It sends a message that this country is inclusive, and that is something I feel is very important for the business community and society as a whole.”

“In Liz we Truss-t”

On the opposing side is Michael Buckworth, the managing partner of law firm, Buckworths. As a member of the Tory party, he has already voted for Truss, explaining that “significant tax rises are simply untenable at the moment. Promises of tax cuts in 7 years don’t help people today and Sunak seems really out of touch with the cost-of-living crisis.

“Truss hasn’t been able to persuade me yet that her [planned tax cuts] won’t add to already sky-high inflation. But I do believe that tax cuts are needed and should lead to growth.”

Who do you want to see replace Boris Johnson as prime minister next Monday? Let us know by emailing hello@startups.co.uk.