Growth is the name of the game in the “new era” of government the chancellor outlined today, marking a clear shift away from distribution policy and a move away from the previous administration.
A budget that was in no way “mini”, has been described by Paul Johnson, director of the Institute for Fiscal Studies, as the “biggest tax cutting event since 1972”.
One of Kwarteng’s key comments was: “If we really want to level up, we have to unleash the power of the private sector…tax is central to solving the riddle of growth”.
Government estimates suggest the measures amount to £27 billion of tax cuts for 2023-2024, rising to £45 billion by 2026/2027.
Investment zones
The government is in discussion with 38 local authorities to establish investment zones in England. Areas hosting these investment zones will benefit from lower taxes, accelerated development and wider support for local growth (for example, Mayoral Combined Authorities hosting investment zones will receive a single local growth settlement in the next Spending Review period).
The government factsheet acknowledges that the freeports programme has shown how targeted tax reliefs and support can bring together the public and private sector to begin to transform areas in need of levelling up.
Energy bill relief
Key for our members is the welcome news that the Energy Bill Relief Scheme is confirmed for businesses at an equivalent level to the measures already announced for households. While only in place for six months, it will provide some relief in the short term.
The cost of the total energy support package will be £60 billion for the first six months.
Making the UK more investment-friendly
The chancellor also touched on the importance of making the UK an attractive place to invest, announcing up to £500m for new innovative funds and attracting investment in UK science and technology scaleups.
He emphasised the need for global banks to invest in the UK, leading up to his announcement of scrapping the cap on bankers’ bonuses. A further package of regulatory reforms of the City will be announced in the autumn.
Enterprise nation
Using a variation of the word three times in his speech, the Chancellor enthusiastically set out his vision for the UK to be a “nation of entrepreneurs”, announcing (to that end) that the Enterprise Investment Scheme and Venture Capital Trusts will be extended beyond 2024.
Transport, another crucial area for the smooth running of trade functions, will also receive support in the form of plans to accelerate new roads and rail infrastructure with new legislation cutting barriers and restrictions. Some deployment of energy infrastructure will also be sped up and streamlined.
Simplification is complex
Eliciting sardonic chuckles from the Opposition, the chancellor announced he wanted to make the tax system much simpler and was therefore winding down the Office of Tax Simplification. His justification was that he will instead embed principles of tax simplification within the heart of Government.
To achieve a simpler system, he said he will remove unnecessary costs for businesses, by measures such as automatically sunsetting EU regulations by December 2023 and repealing the 2017 and 2021 IR35 reforms.
What next?
Things to watch out for in the coming weeks include further plans on speeding up digital infrastructure, reforming business regulation, improving farming productivity and supporting financial services.
It cannot be ignored that the scale of these measures is unlike anything the UK has seen for decades.
A former Cabinet Minister was asked his opinion this morning by Beth Rigby, political editor and presenter at Sky: “Brave, minister?”.
She replied – brave or foolhardy?... “We’ll know in 12 months”.
From a purely political angle, the new government sees today’s steps to quickly boost the economy as the best option for staying in power. It is also in line with the political principles both Truss and Kwarteng hold regarding a lower-tax economy.
In short, it’s a Thatcherite move from a Prime Minister who has largely modelled herself on Thatcher throughout her rise to power.