Chancellor announces new Growth Plan with ‘mini-budget’
UK Chancellor Kwasi Kwarteng today (Friday 23 September) unveiled his Growth Plan to release the "huge potential in the British economy" by tackling high energy costs and inflation and delivering higher productivity and wages.
The plan set the ambitious target for 2.5% trend of growth, in a bid to "secure sustainable funding for public services and improving living standards for everyone".
The Chancellor of the Exchequer, Kwasi Kwarteng, said:
“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.
“Cuts to stamp duty will get the housing market moving and support first-time buyers to put down roots. New Investment Zones will bring business investment and release land for new homes in communities across the country.
And we’re accelerating new road, rail and energy projects by removing restrictions that have slowed down progress for too long.
“We want businesses to invest in the UK, we want the brightest and the best to work here and we want better living standards for everyone.”
What was announced in the Chancellor's mini-budget?
• NATIONAL INSURANCE - As announced yesterday, Chancellor Kwasi Kwarteng confirmed m that this year’s 1.25% point rise in National Insurance and its replacement, the Health and Social Care Levy planned for April 2023, will be cancelled.
• HOUSEHOLD ENERGY - From October, the Energy Price Guarantee will limit the price customers can be charged for energy. This means the typical household will now likely pay £2,500 for their annual energy use, a £1,000 saving.
• BUSINESS & ORGANISATION ENERGY - The Energy Bill Relief Scheme will help to cut energy prices for businesses, charities and public sector organisations, such as schools and hospitals. The scheme will run for 6 months and cover energy used from 1 October 2022 to 31 March 2023.
• MAJOR INFRASTRUCTURE PROJECTS - New legislation to reform planning permission for major infrastructure projects. "This will reduce unnecessary bureaucracy in the system and help drive growth for the UK economy". Over 100 sites have already been identified.
• UNIVERSAL CREDIT - Changes are being made to Universal Credit to encourage more people into work. This means more people who receive this benefit will have to:
- Meet regularly with their work coach
- Take steps to increase their earnings
- Face benefits reductions if commitments aren't met.
Universal Credit Claimants who earn less than the equivalent of 15 hours a week at National Living Wage will be required to meet regularly with their Work Coach and take active steps to increase their earnings or face having their benefits reduced. "This change is expected to bring an additional 120,000 people into the more intensive work search regime."
Jobseekers over the age of 50 will also be given extra time with jobcentre work coaches, to help them return to the jobs market. "Rising economic inactivity in the over 50s is contributing to shortages in the jobs market, driving up inflation and limiting growth."
"Returning to pre-pandemic activity rates in the over 50s could boost the level of GDP by 0.5-1 percentage points."
• INVESTMENT ZONES - The government has agreement in principle with 38 areas to establish tax-cutting Investment Zones which will drive growth & unlock housing development. Work will also begin with Scotland, Wales and Northern Ireland to agree zones in these locations.
• CORPORATION TAX - The planned Corporation Tax increase to 25% has been cancelled. The rate will stay at 19%, the lowest in the G20. "This will support business investment and help economic growth."
• INVESTMENT ALLOWANCE - To support businesses to invest and grow, the Annual Investment Allowance will be permanently set at its highest ever level of £1 million from 1 April 2023. This will give 100% tax relief to businesses on their plant and machinery investments up to the level of £1 million.
• SEED INVESTMENT SCHEME - The criteria will be widened for the Seed Enterprise Investment Scheme (SEIS), including allowing firms to now raise £250,000 under the scheme - 66% more funding than previously. "This will help businesses to access the finance they need to grow."
• COMPANY SHARE OPTION - The Company Share Option Plan (CSOP) limit allows businesses to offer employees share options worth up to £30,000. This will be doubled to £60,000 to encourage employers to offer more shares to their employees, "so everyone can share in the success."
• VAT-FREE SHOPPING - The government will introduce a modern, digital, VAT-free shopping scheme for international tourists. "This will support high streets, shopping centres and airports, creating jobs in the retail and tourism sectors."
• ALCOHOL DUTY - Alcohol duty will be frozen from February 2023. This is a tax cut worth £600 million and will save the consumer 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. "This will also help the hospitality industry bounce back."
• STAMP DUTY - Stamp Duty Land Tax to be cut to help more people to move, promote residential investment and boost first-time ownership. "All alongside our housing supply reforms in today’s Growth Plan."
• IMCOME TAX - From April 2023 the basic rate of Income Tax will be cut from 20p to 19p, "helping working families keep more of their hard-earned cash". The 45p additional rate abolished completely "to attract global talent and incentivise enterprise".
The majority of announcements today are UK-wide, however the Scottish Government is expected to receive more than £600 million extra funding over the 2021 Spending Review period as a result of the changes to income tax and Stamp Duty Land Tax and the Welsh Government will receive around £70 million over the same period as a result of the change to Stamp Duty Land Tax.
The reversal of the Health and Social Care Levy will save 4.3 million people across Scotland, Wales and Northern Ireland more than £230 on average next year.
In the coming weeks, the Government states it will set out "further details of plans to speed up digital infrastructure, reform business regulation, increase housing supply, improve our immigration system, make childcare cheaper, improve farming productivity and back our financial services."
Commenting on what today’s announcements mean for the NI economy, David Armstrong, consulting partner and Government & Health Industries leader for PwC Northern Ireland, said:
“Today the Government released its new Growth Plan. The Chancellor’s main gamble is that his announcement will boost short-term growth and raise the trend growth rate to 2.5% per year. It will also address some of the short-term pains caused by rising inflation.
“In the longer-term, we need to remain focused on accelerating future productivity growth in NI. This can be achieved through investment in a broad range of skills, and in particular, skills in the sectors we know are growing and can shape a stronger future for NI, such as green jobs and the priority clusters outlined in the ‘10x Economy’ vision, such as cybersecurity, AI and robotics.
“The issues and opportunities are complex, and no one organisation can tackle them successfully on their own. Rather, the business community needs to work alongside government and other stakeholders to drive sustainable change through meaningful collaboration.”
Commenting on what today’s announcements mean for individuals and businesses in NI, Cara Haffey, partner and Private Business leader for PwC Northern Ireland, said:
“The Chancellor announced a range of measures today designed to boost economic growth. They set out a fundamental change of direction with echoes of an approach not seen since the 1980s. The Chancellor has been clear that the government’s focus is first and foremost on measures aimed to stimulate growth leading to what is a radical set of tax measures for any budget - let alone a mini one. Those looking for stability will be comforted by the fact that many of the tax changes will be permanent, however the Chancellor was also clear that more reforms will follow - so all eyes will be on the Autumn Budget.
“On tax policy, almost all of the announced policies cut taxes on workers and businesses. For businesses, the scrapping of the planned rise in corporation tax will be welcomed. Capital intensive businesses, including manufacturers, will welcome the annual investment allowance being made permanent at £1m.
“For workers, the long-trailed reversal on the national insurance rise for individuals and businesses and cutting the basic rate of income tax next year, alongside the energy bills support payment, home heating oil payment and energy price cap, will go some way to alleviate the rising cost of living. The stamp duty land land tax cut announced for England and Northern Ireland will help to stimulate additional demand and make it easier for first-time buyers to get onto the property ladder.
“It was made clear that the Government sees Regional Growth as a key priority as they provided some further detail on their planned Investment Zones, which are designed to drive growth and unlock housing by lowering taxes and liberalising planning frameworks to encourage rapid development and business investment. Close to 40 have been announced in England, so more detail on how this will be delivered in Northern Ireland will be welcomed.
“Looking to the retail and hospitality sector, many were hoping for an announcement on VAT and business rates today. Although the alcohol duty freeze will be welcome to the hospitality industry, as they seek support to face challenges from more cautious consumer spending, ongoing staffing challenges and inflation across their cost base.”