2022 is the year for 80s nostalgia. Top Gun in the cinemas, Kate Bush in the charts, and a proxy war with Russia. In an apparent attempt to get in on the act, new Chancellor of the Exchequer, Kwasi Kwarteng has thrust fiscal and monetary policy back in time too. This morning’s ‘mini budget’ goes further than its name suggests, dramatically shifting the UK’s taxation policy with the biggest tax cuts since the 1972 ‘Barber Budget.’ But will this ‘gamble on growth’ do enough to stimulate the lethargic British economy and save people’s finances in this cost-of-living crisis?
So far, responses to the ‘2022 Plan for Growth’ have been mixed – at best. The pound dropped to $1.10 against the US dollar for the first time since 1985, suggesting anxiety in the financial markets. Commentators have been quick to question how we will cover £45 billion worth of tax cuts with Paul Johnson of the Institute for Fiscal Studies forecasting that, in three years’ time, borrowing will rise to £120 billion a year as a result of this morning’s policy blitz.
Meanwhile, others have highlighted the measures designed to help businesses and pull the British economy out of recession. Head of the British Chambers of Commerce, Shevaun Havilland said: “Businesses will welcome many of the measures announced today that should boost economic growth, relieve cost pressures and encourage investment,” describing the reversal of a rise in national insurance as “a big win for the British Chambers of Commerce and the business community.”
A series of cuts
Many of the policies were well-trailed with announcements earlier in the week. Reducing income tax by 1p in every pound, scrapping the 1.25 per cent rise in National Insurance, and suspending the planned 6 per cent hike in corporation tax (to 25 per cent) will vie for the headlines, alongside the cut to stamp duty, which will double the threshold for payments, removing the duty for around 200,000 people a year and potentially unsticking parts of the housing market.
Other rabbits pulled out of the hat today were yet more tax cuts: abolishing the top rate of income tax of 45 per cent, cancelling planned increases to duties on beer, cider, wine, and spirits, and removing VAT on shopping for overseas visitors to the UK.
Significant attention was given to planning with the Chancellor committing to “get Britain building.” He highlighted the potential in life sciences, technology, and clean energy, and criticised the existing planning system for delaying development.
Kwarteng referred to new legislation to come in the next few months to simplify the application process of Development Consent Orders (DCO), required for developments deemed Nationally Significant Infrastructure Projects. They are to include reducing bureaucracy in the consultation process and allowing more flexibility to change a DCO once it’s been submitted.
There are also plans for low tax, low regulation ‘investment zones’ in up to 38 locations. Measures in these zones will include 100 per cent tax relief on investments in plants and technology, zero business rates for new occupants and zero stamp duty on building purchases. It is hoped that these zones will help to arouse the interest of investors and unlock development.
A new era
The mini budget confirms that Liz Truss’ government will take a significant departure from the previous government with many policies introduced under Boris Johnson’s government being reversed or cancelled. As Kwasi Kwarteng declared, we are “at the beginning of a new era.” But as calls gather for a general strike, and the cost-of-living crisis continues to batter the public mood, how long this ‘new era’ lasts will depend on whether the administration can convert cuts into popular support.