It was described as a ‘Mini-Budget’ but the statement from the Chancellor Kwasi Kwarteng was far away from a small update. In fact, the Institute of Fiscal Studies say it’s the biggest package of tax cuts in half a century.
The policy decisions made by Liz Truss’ government, which has only really been in full swing this week, included reversing planned tax rises for incomes and businesses, promising more reliefs for people getting on the housing ladder, radically incentivising investment, cutting bureaucracy, and even abolishing entire regimes, such as IR35 and the higher tax rate on those earning over £150,000.
All these decisions were made without the Office of Budget Responsibility, which independently oversees fiscal events, being involved.
The government billed the event as the Growth Plan – the word ‘growth’ was used some 24 times by the Chancellor during his 15-minute speech. And unlike predecessors, Sunak and Johnson, the new Prime Minister and Chancellor seemed rigidly on the same page – they made a point of appearing in a video together discussing their ambition, published early this morning on the No.10 Twitter feed.
The announcements follow the leadership campaign where Truss won over supporters with her positive vision for a tax cutting agenda, even in the face of economists telling her otherwise. Today marked the delivery on those promises, and then some. Underpinning their plan is a policy priority of unleashing growth across the UK, through simplification and incentives. This is, according to the government, the only sustainable way to raise living standards and fund vital public services.
Their plan is radical, and whilst it has caught many commentators off-guard, it has been a long time in the works – both Truss and Kwarteng first promoted this economic ideology in ‘Britannia Unchained’, a paper they co-authored together in 2012. Many economists are dubious of whether their policies will revitalise the economy as we head into a difficult winter, though arguably they were left with no alternative but to take a risk – the Conservative Party has been in power for 12 years after all.
In the long-term, whether this ‘Mini-Budget’ – and the full one expected in November – will really ‘unchain’ Britain is anyone’s guess. For Truss, she just needs to make it work until the next election.
Likewise, it’s now crystal clear that there is a central vision to the Truss government and she isn’t just Boris 2.0. Her approach is the most radical in decades, striking away from previous Tory governments that she was a part of – a point that the Shadow Chancellor was only too happy to point out at the despatch box.
The upcoming party conference season is where we’ll get a better sense of how her approach is landing. For Labour, who to date had also been upping their use of the word ‘growth’, they will have to decide whether to call Truss’s plan out, or double down on their own vision. Meanwhile, at the Conservative conference in two weeks, Truss will be hoping to walk onto stage to rapturous applause.
For businesses looking on, the government’s ‘Growth Plan’ has certainly thrown up opportunities. Companies looking to capitalise on these new policies rebuilding UK Plc towards higher growth will find open ears in Whitehall over the coming 12 months.
The key announcements
- Off-payroll working rules (IR35) will be repealed from 6 April 2023
- The government will introduce a modern, digital, VAT-free shopping scheme for international tourists
- The Company Share Option Plan (CSOP) limit allowing businesses to offer employees share options worth up to £30,000 is being doubled to £60,000
- Government is widening the criteria of the Seed Enterprise Investment Scheme (SEIS), including allowing firms to raise £250,000 under the scheme – 66% more funding than previous
- Annual Investment Allowance will be permanently set at its highest ever level of £1 million from 1 April 2023
- The planned Corporation Tax increase to 25% has been cancelled. The rate will stay at 19%
- The government has agreement in principle with 38 areas to establish Investment Zones. These zones will benefit from tax incentives, streamlined development applications and reliefs
- Introducing draft regulations to reform the pensions regulatory charge cap, giving defined contribution pension schemes the ability to invest in more UK firms
- Introducing Long-Term Investment for Technology & Science (LIFTS) competition, providing up to £500 million to support new funds designed to catalyse investment from pensions schemes and other investors into the UK’s pioneering science and technology businesses
- The government has pledged new legislation to boost infrastructure, including reducing administration bureaucracy and reducing the time to consent to new developments
- The government set out infrastructure projects that will be prioritised for acceleration, across transport, energy and digital infrastructure [list here]
- From 23 September the threshold from which Stamp Duty Land Tax (SDLT) must be paid will be doubled to £250,000 for all home purchases. The threshold at which first-time buyers begin to pay SDLT will increase from £300,000 to £425,000, and the maximum value of a property on which first-time buyers’ relief can be claimed will also increase from £500,000 to £625,000
- The basic rate of income tax will reduce from 20% to 19% from April 2023
- The top rate of income tax (45% on incomes over £150,000) has been abolished, leaving 40% rate for any income over £50,000
- The current cap to bankers’ bonuses will be removed
- From 6th November National Insurance will be cut by 1.25% points and cancelling the Health & Social Care Levy
- The 1.25% increase in dividend tax rates from April 2023 will be reversed
- Alcohol duty will be frozen from February 2023.
The latest reactions
Rachel Reeves MP, Shadow Chancellor, said:
“The Chancellor has made clear what his priorities are. A return to the trickle down of the past, not a brave new future. This is casino economics – gambling the mortgages and finances of every family in the country. It is reckless, and it is irresponsible.”
Paul Johnson, Director of Institute for Fiscal Studies, said:
“This is the biggest tax cutting event since 1972. Barber’s “dash for growth” then ended in disaster. That Budget is now known as the worst of modern times. Genuinely, I hope this one works very much better.”
Torsten Bell, Chief Executive at the Resolution Foundation, said:
“This may not have been a Budget, but the Chancellor has certainly blown the budget with the biggest package of tax cuts announced since the ill-fated Barber Budget of 1972. His decision to combine the largely unavoidable higher deficit caused by rising energy prices and interest rates with permanent tax cuts will drive up borrowing by over £400 billion in the coming years. No Chancellor has ever chosen to permanently increase borrowing by so much. Without significant cuts to public spending, debt will be on course to rise in each and every year. This is not what sustainable public finances look like. Every scrap of Treasury orthodoxy has been torn up.”
Martin Lewis, Consumer Campaigner, said:
“That really was quite a staggering statement from a Conservative party government. Huge new borrowing at the same time as cutting taxes. It’s all aimed at growing the economy. I really hope it works. I really worry what happens if it doesn’t.”
Tony Danker, CBI Director-General, said:
“This is a turning point for our economy. Like Covid, the energy crisis has meant Government has had to spend massively to protect people and businesses. That means we have no choice but to go for growth to afford it. Today is day one of a new UK growth approach. We must now use this opportunity to make it count and bring growth to every corner of the UK. Fifteen years of anaemic growth cannot be repeated.”