The Treasury’s Growth Plan has been the subject of much discussion and some alteration since it was announced by the Chancellor of the Exchequer on 23rd September.
The Government believes that the main focus of this ‘Mini Budget’ announcement is the direct benefits to constituents now: the energy cap and tax cuts. Stable energy costs will ensure significant peace of mind over this turbulent period. It is a Budget that the Government has said is focused on growth and they feel that this will enable these stimulus packages to be repaid with higher growth rates and therefore higher revenue for the Government.
Alongside the Mini-Budget were further key measures over energy prices and they need to be considered together. Putin’s weaponisation of gas prices is the biggest drag on growth in the short-term. The government acted on 8th September to announce the Energy Price Guarantee, to ensure that a typical household in Great Britain pays an average £2,500 a year on their energy bill for the next two years, from 1st October 2022, and businesses for at least 6 months. This will save the typical family an extra £1,000 off their bills, on top of the already promised £400 Energy Bills Support Scheme. This forms part of Government’s comprehensive package of support to help families and businesses through this winter.
The stated intention of this Budget is to achieve a trend growth rate of 2.5 per cent – measuring every policy decision against this defining test. Every government department will be in a sense a growth department. The Growth Plan will focus on: Maintaining responsible public finances, reforming the supply-side of the economy and cutting taxes to boost growth. It has been described as “bold and unashamed” in this pursuit as it intends to remove barriers for business and build the infrastructure we need to grow the British economy. The Government will publish a Medium-Term Fiscal Plan in due course setting out its fiscal approach recognising our focus on growth and the OBR will publish a full economic and fiscal forecast before the end of the calendar year with a further one next year. The Government states that it will use borrowing powers responsibility to fund our energy intervention, just as during Covid-19.
This all reflects a significant fiscal tone-change from that of Governments of recent years. It essentially comes down to the belief that lower taxes and less regulation stimulate higher growth, as opposed to higher taxes and redistribution as a way of running the economy. As a Conservative it is my belief that allowing people to keep more of their own money and make more of their own decisions will generate more growth to ensure that there is more revenue coming in to spend on public services in the fullness of time, but I note that this a strategic long-term objective and has taken a significant number of years to achieve in the past, such as in the 1980s. Whether the tactical issue of timing, especially in view of the energy crisis and level of borrowing / public spending, or the communications and statistical underpinnings issues have been handled as well as they could have been has, of course, been the subject of ferocious discussion and disagreement since the Mini Budget took place.
The security of energy bills, coinciding with more freedom and allowances for investment, is intended to help cultivate a more confident economic climate with which to generate growth and for businesses and consumers to make positive investment decisions.
At the Mini-Budget, the Chancellor Kwasi Kwarteng set out plans for Investment Zones across England, liberalising planning rules in specific sites to encourage rapid development and business investment. A list of infrastructure projects that will be accelerated is to be published soon, with the opportunity for other areas to bid for such status straight away, complemented by a renewed focus to speed up projects through new legislation. This is intended to streamline the complex patchwork of restrictions and EU-derived laws, some of which have held Britain back over the decades.
There has never been a period of economic growth without a strong financial centre and it was argued in the Mini-Budget that the UK is made more competitive by removing the bankers’ bonus cap which is said to have seen a drain of tax revenue and talent to Paris and Frankfurt.
There comes a point when tax rates reach a level where they no longer raise as much for the public purse as lower tax rates do. Higher tax RATES do not always equal higher tax TAKES. This has been ably demonstrated by Corporation Tax rates not only in the UK but in other jurisdictions as well and has its overall basis in economics in the Laffer Curve. It is another major political philosophical division as explained before.
This is the philosophy behind the Growth Plan. Taxes at too high a rate damage Britain’s competitiveness and reduce incentives to work. Therefore, the 1 percentage point cut to the Basic Rate of Income Tax is being brought forward to April 2023.
The level at which Stamp Duty is paid is doubling from £125,000 to £250,000, and First Time Buyers’ Relief is expanding, by increasing the level at which first-time buyers start paying Stamp Duty from £300,000 to £425,000. Further tax announcements to boost investment have been set out through increasing the level of the Seed Enterprise Investment Scheme and Company Share Ownership Plan and confirming that the Annual Investment Allowance will be set at £1 million permanently.
Biodiversity loss is a global problem that needs a global solution, and the UK is committed to playing a leading role in developing an ambitious post-2020 global biodiversity framework to be adopted at COP15 of the Convention on Biological Diversity. This includes targets to ensure at least 30 per cent of the global land and of the ocean is protected, ecosystems are restored, species population sizes are recovering, and extinctions are halted by 2050.
Farmers do essential work in producing high quality food for consumption at home and for export. The UK is free from the Common Agricultural Policy, which did little to deliver for farmers, farming or the environment leaving agricultural productivity weak - this needs to change to support the rural economy. The government will rapidly review frameworks for regulation, innovation, and investment that impact farmers and land managers in England, such as targeting requirements that “create paperwork and stall development but do not necessarily protect the environment”. This will ensure government and industry are working together to strengthen UK food security, and maximise the long-term productivity, resilience and competitiveness of the British countryside. The government will set out plans later this autumn. I am very committed to protecting the natural environment and will certainly hold the Government to account over ensuring that all of its plans look after the nature in the UK as well. The Government has started that this is a priority for them as well.
Andrew Lewer MBE MP