Prime Minister Liz Truss promised she would cut taxes and promote economic growth in her Conservative Party leadership campaign and today she put her words into action. The mini-budget – or to use its correct title The Growth Plan – delivered by her Chancellor Kwasi Kwarteng was arguably Thatcherite, hence HM Opposition benches were practically sent into meltdown as tax cut after tax cut after tax cut was unveiled. In what seemed to be a direct embrace of the old adage that “madness is doing the same thing over and over and expecting a different result,” 25 years of Blairite economic policy – embraced subsequently by Gordon Brown, George Osborne, Philip Hammond and Rishi Sunak – were ditched in favour of an ambitious aim to avoid recession and achieve a trend growth rate of 2.5% for the UK economy by cutting the UK tax burden, at its highest level since the 1940s. This, Kwarteng said, disincentivises hard work, investment and job creation, as he set Britain on a very different path that, in a nutshell, lets everyone keep more of what they earn.
Some announcements had already been briefed. The Energy Bill Relief Scheme cutting energy prices for businesses, charities and public sector organisations, such as schools and hospitals, and the Energy Price Guarantee limiting the price domestic customers can be charged for energy, saving the typical household £1,000 a year. It was also known he would scrap former Chancellor Rishi Sunak’s 1.25% National Insurance rise, and the Health & Social Care Levy.
But Kwarteng had plenty of surprises under his belt. The planned Corporation Tax rise to 25% was cancelled, meaning the rate will stay at 19%, the lowest in the G20, to support investment. He also cut the basic rate on Income Tax from 20p to 19p from April 2023, and abolished the 45p additional rate to attract global talent and incentivise enterprise, leaving a 40% top rate of tax. Interestingly, this move seemed to cause more fury on social media than confirmation that the cap on bankers’ bonuses was being scrapped. It immediately triggered accusations the government is prioritising the richest over the poorest at a time where millions of the most vulnerable people are struggling to make ends meet. Most commentators failed to mention however that the additional tax rate was only 40% under the previous Labour governments until almost at the end of their term in 2010 when they hiked it 50%. Was that sound economic policy that benefitted the Treasury? No. Subsequent HRMC analysis of that move showed high-income individuals shifted at least £16 billion of taxable income into 2009-2010, at a cost to the Exchequer of around £1 billion.
The cut to Stamp Duty Land Tax to help more people to move, promote residential investment and boost first-time ownership, was also unexpected. The nil-rate band was doubled for all buyers to £250k from today, while first time buyers will only pay duty on homes worth over £425K, up from £300k. The maximum value of a property on which first-time buyers’ relief can be claimed has also increased from £500,000 to £625,000.
Kwarteng also froze alcohol duty from February 2023, a tax cut worth £600 million that will save drinkers 7p on a pint of beer, 4p on a pint of cider, 38p on a bottle of wine, and £1.35 on a bottle of spirits. He also introduced a new digital, VAT-free shopping scheme for international tourists to support high streets, shopping centres and airports, and help create jobs in retail and tourism sectors.
Other moves included doubling the Company Share Option Plan which allows businesses to offer employees share options from £30,000 to £60,000, and widening the criteria of the Seed Enterprise Investment Scheme (SEIS), including allowing firms to now raise £250,000 under the scheme – 66% more funding than previously. The Annual Investment Allowance was also set permanently at its highest ever level of £1 million from 1 April 2023, giving 100% tax relief to businesses on their plant and machinery investments up to that level. Kwarteng also announced that IR35 reform will be repealed from April 2023.
The government also agreed in principle 38 areas to establish tax-cutting Investment Zones to drive growth and unlock housing development, together with new legislation to reform planning permission for major infrastructure projects such as roads, railways and energy project on over 100 sites by reducing “unnecessary bureaucracy” in the planning system.
No changes were made to Capital Gains Tax, Inheritance Tax or VAT.
So, what is our view of this, arguably the most dramatic tax-cutting budget since 1972? We think it is an ambitious step towards helping the economy recover from the ravages of covid lockdowns and global economic conditions which risk recession at worst, and anaemic growth at best. If this budget cannot get the economy moving by encouraging investment and optimism, then nothing can. What we found especially refreshing was hearing a Chancellor so relentlessly focussed on giving people more of their own money to spend, as opposed to the usual list of expensive public sector spending proposals that can cause hard working taxpayers to despair.
Conservatives are dominating the political and economic debate with a new found intellectual self-confidence and coherence and frankly, Labour aren’t on the field. With less than two years to go to a General Election, both parties have time as their enemy and cannot afford complacency. However, if Truss and Kwarteng can quieten a cranky and fractious Parliamentary Conservative Party and get the results they are expecting from this Budget – and Political Insight thinks they will – then UK Plc will boom. And given that economic growth means more jobs, higher wages, and more money for schools and the National Health Service, that must be a good thing.
© Political Insight 2022