With Liz Truss confirmed as the UK’s 78th Prime Minister, investors will be considering whether her appointment will be good for the Footsie, and whether she can do better than her predecessor, Boris Johnson, who has seen the index of the UK’s largest companies decline by 5.5% during his tenure.
Supporters of Johnson will point to the Covid pandemic and the war in Ukraine as events outside of his control, but Truss has her own major problems to deal with, such as rampant inflation and the cost-of-living crisis.
So, what did the Conservative Party leadership campaign tell us about the policies of the new Prime Minister?
Not very much, although Truss was keen to boast of her tax-cutting credentials.
Truss pledged to reverse the planned increase in corporation tax from 19% to 25%, due to take effect in April next year.
She also promised to reduce both employer and employee National Insurance contributions by 1.25%.
With FTSE 100 companies generating profits of £300bn, and employing nearly 5m people, these tax cuts will be welcomed by shareholders.
On top of these cuts, a 5% reduction in VAT has been rumoured. Britain’s largest non-food retailers, including JD Sports and Next, will like that.
But not everyone thinks the Truss tax proposals will be good for the economy.
Mrs Thatcher’s favourite economist, Sir Patrick Minford — and ironically a Truss supporter — has said her package of tax cuts could force interest rates up to 7%.
This would inevitably cause a housing market crash, further damaging the prospects of the UK’s largest builders — Persimmon, Taylor Wimpey and Barratt Developments — which have all seen their share prices tank in recent months.
However, banks have traditionally benefitted from high interest rates as this improves their net margin — the difference between the amount they earn on loans and the interest paid on deposits — but Lloyds is more heavily exposed to the UK economy than the likes of HSBC and NatWest.
Against a backdrop of rising gas prices, Truss has ruled out a windfall tax on energy company profits.
Truss also wants to offer more licences to extract North Sea oil. As Shell and BP are keen to boost their green credentials, they may benefit less than their shareholders might hope.
BAE Systems, Britain’s largest weapons manufacturer, will welcome her commitment to increase defence spending to 3% of GDP by 2030.
But with little given away over the summer leadership campaign, does Truss’ record in Parliament give us any clues as to what she will do from behind her desk in 10 Downing Street?
Despite voting Leave, Truss is now pro-Brexit. This will disappoint the majority of the UK’s largest companies that are exporters.
Investors in Flutter Entertainment will welcome suggestions that Truss is against greater gambling restrictions, and shareholders in British American Tobacco and Imperial Brands will be encouraged that Truss has historically voted against further restrictions on smoking.
Common themes of freedom and less government independence are therefore likely to run through the Truss government’s policy programme.
All attention will now be on the anticipated Emergency Budget (Truss has started to call it a “fiscal event”), which is expected before the end of September.
Only then will we really know whether Liz Truss’ election is good for the FTSE 100.
