When is a ‘Budget’ not a Budget?
When it’s a fiscal event.
Not a great joke, but then the new chancellor, Kwasi Kwarteng, took a more straightforward approach to his speech, avoiding the jokes favoured by some previous chancellors.
The headline from Kwarteng’s first fiscal event was a dramatic reversal in tax policy.
Cuts to the basic and higher rate of income tax, reductions in stamp duty, overturning the increase to National Insurance and revoking the planned rise in corporation tax add up to a major shift away from tax and spend, to a ruthless single focus on encouraging growth.
As Kwarteng put it:
“Economic growth isn’t some academic term with no connection to the real world. It means more jobs, higher pay and more money to fund public services, like schools and the NHS. This will not happen overnight but the tax cuts and reforms I’ve announced today – the biggest package in generations – send a clear signal that growth is our priority.”
But there will be a lag before the returns from this extra growth land in Treasury coffers.
Kwarteng promised to adhere to the principle of fiscal responsibility, and – in “due course” set about reducing the ratio of debt to GDP – but for now there was no detailed explanation of how the extra spending would be paid for.
The Office for Budget Responsibility (OBR) will, said Kwarteng, offer a full report before the end of the year.
Marking a clear break with the Conservative governments of the last 12 years, Kwarteng called this the “beginning of a new era” and a move away from “the vicious cycle of stagnation into a virtuous cycle of growth”.
Setting a target for the trend growth rate to be 2.5%, the chancellor laid out what he called a new growth plan, built on three pillars of reforming the supply side of the economy, maintaining fiscal responsibility and cutting taxes to stimulate growth.
The top 10 announcements:
- Corporation tax: will remain at 19%, with the planned rise for next April scrapped.
- Growth target: the chancellor has set an annual trend growth target of 2.5%.
- Income tax: a 1p cut to the basic rate to 19% from April 2023 and a single, higher rate of 40% also from April 2023.
- Energy price cap as previously announced for homes and businesses: the average family will benefit from £1,000 off bills this winter and receive a one-off £400 payment. The price cap will apply to all businesses, charities and public sector organisations for the next six months.
- Investment Zones: The creation of a series of investment zones, which will allow local businesses to benefit from a wide range of targeted and time-limited tax cuts, including paying no employer NICs, no business rates or stamp duty and a series of other accelerated tax reliefs.
- Stamp duty: cut at all levels of the market, with the nil-rate band raised from £125k to £250k. First-time buyers won’t pay anything on properties below £450k.
- Alcohol duty: will be frozen for a year, while a review of the whole duty system is undertaken.
- National insurance: the proposed 1.25% increase in NI contributions has been withdrawn, with the return to the previous rate coming into effect from 6 November.
- Annual investment allowance (AIA): the plan to reduce the limit for AIA back to £200,000 has been shelved and will remain permanently at £1m.
- EIS, SEIS and CSOP: SEIS limit extended to £250,000 from April, CSOP limit raised to £60,000
Other announcements from Kwarteng included a major reform of the planning system, including the system for how government assesses infrastructure projects, over the next few months and scrapping the cap on bankers’ bonuses.