There are no guarantees in the new Chancellor’s ‘Growth Plan’
Another document bedecked in a Union Jack
£45 billion of tax cuts. This is biggest tax cutting event since 1972. Barber’s “dash for growth” then ended in disaster. That Budget is now known as the worst of modern times. Genuinely, I hope this one works very much better.
(Paul Johnson, IFS)
Although trailed in the press as a ‘mini budget’, Kwasi Kwarteng’s first major announcement as Chancellor of the Exchequer was anything but mini. The Government’s new ‘Growth Plan’ contains £45 billion of tax cuts and over £120bn of net spending commitments over the next five years that “makes growth the government’s central economic mission, setting a target of reaching a 2.5% trend rate.” (Our emphasis)
This is not a particularly ambitious target in the context of UK annual GDP growth rates over the past sixty years – but we are in apparently unprecedented times post-pandemic, with the UK forecast to have the lowest growth in the G7 in 2023 unless radical action was taken. Why does this matter? The plan is at pains to state that:
“Sustainable growth will lead to higher wages, greater opportunities and provide sustainable funding for public services.”
Action was undoubtedly warranted as the Johnson Government spluttered to the end of its appalling working life without any form of recognised economic strategy. Does this new plan take the right action to provide the sort of sustainable and fair growth required to return the UK to a more solid economic footing?
Regrettably, our answer is a firm no. It introduces a couple of useful measures, a number of regressive ones and – worse – adds several unknowns into an economy in desperate need of certainty.
What works?
We found three parts of the Plan that we believe would aid ‘good growth’.
1) Stamp Duty reform. From 23 September the threshold from which Stamp Duty Land Tax (SDLT) must be paid will be doubled to £250,000 for all home purchases. The threshold at which first-time buyers begin to pay SDLT will increase from £300,000 to £425,000, and the maximum value of a property on which first-time buyers’ relief can be claimed will also increase from £500,000 to £625,000.
We think stamp duty is a regressive tax and would rather it was completely abolished; reducing the burden of stamp duty tax on housing however will make it easier for people to upsize, downsize or to move where better job opportunities are available. In time these could be in Government-sponsored investment zones – more on these later…..
2) Efforts to make investment in early stage high value companies easier. Page 16 of the plan reveals the Government’s intent to unlock billions of pounds of investment into scaling up the country’s science and technology firms by ‘bringing forward draft regulations to reform the pensions regulatory charge cap’, thereby ‘giving defined contribution pension schemes the clarity and flexibility to invest in the UK’s most innovative businesses and productive assets…creating opportunities to deliver higher returns for savers.’
A regular complaint of UK firms at an early stage of research & development is both a lack of capital and a failure of financial institutions to understand what it is they are trying to achieve, often stalling promising ideas at the pre-commercialisation stage and forcing firms to either publicly list, take on expensive debt or become embroiled in grant competitions. Providing the administration surrounding the finance raised isn’t too onerous, this is a definitive progressive measure and is strongly welcomed by Bellona Advisors.
Onshore wind, comeback king
3) The long awaited return of on-shore wind. Renewables are an obvious part of any future energy mix – yet the Government has had a real love-hate relationship with the sector over the past three decades. The plan states that ‘the government will unlock the potential of onshore wind by bringing consenting in line with other infrastructure’, a real hallelujah moment given no new on-shore wind farms have received consent for the best part of a decade. This will only be sorted however through the application of yet another planning bill – another subject covered later…..
What doesn’t work?
This is all outweighed however by a series of measures that can either be defined as regressive, unfair or short-sighted.
The IFS plots who gains or loses from the tax measures in the Plan
This begins with the well-publicised issue of tax cuts. Whilst tax cuts across the board were announced, cutting the 45% rate for top earners from next March means that:
“…despite today’s tax cuts middle earners are still set to lose as a result of tax changes over the next few years. The freezing of allowances and thresholds is still a big tax increase. Only those on over £155,000 will pay less tax overall. The very rich will pay tens of thousands less.”
(Paul Johnson, IFS)
How on earth the Government can hugely increase public spending to ultimately only directly increase the wealth of the top 10% of earners – at a time of a cost of living crisis – is absolutely baffling and does nothing to create sustainable growth. The graph on the right shows all. We can’t even explain this as a pre-election giveaway given how few really benefit…..
Now we’re not tax experts at Bellona Advisors, but luckily the Institute for Fiscal Studies is. Read their in-depth assessment here.
Next up – decarbonisation. You may have thought that a new push towards on-shore wind could have signalled a renewed post COP-26 effort towards a cleaner energy supply. Well you shouldn’t have thought that. The fourth paragraph of the Plan’s Executive Summary iterates that interventions in the energy market to help reduce costs and improve resilience ‘over the longer term’ – followed by the announcement that the North Sea Transition Authority will launch a new oil and gas licensing round, issuing up to 100 new licences. Given the costs and length of time required to explore and extract oil and gas, it is impossible to reconcile this new work with the Government’s own net-zero 2050 plans – making it even less likely to be met. Quite how this will be viewed internationally can be easily guessed.
This lack of a grip (or willingness) on decarbonisation is further evidenced by the Government’s lack of concerted action on retrofitting homes as both a green economy enabler and as a means of reducing pressure on the grid. BEIS has previously said that insulating all homes to an acceptable standard (for now) would cost around £35bn, which as a jobs and decarbonisation catalyst is a far better use of public money than the tax cuts proposed. Instead, the plan offers a modest £1bn programme from 2023 aimed at the least efficient homes in lower council tax bands. This is a start of sorts (which we support) but it really ought to be far more and we will continue to lobby on this issue.
The plan makes a great virtue of the need for ‘supply side reforms’. Despite this, the plan also offers virtually nothing on skills – not even the hint of a recognition that key foundation industries including manufacturing and construction are crying out for new skilled talent within their industries. Instead, the plan makes fairly lily-livered references to the Government ‘continuing to consider further options to encourage people to stay in the market for longer’ (like tax breaks? -Ed) and other immigration interventions alongside ‘the introduction of Global Talent, High Potential Individual, Scale-up worker and Global Business Mobility via routes’. You cannot have a plan for growth without a plan for skills and this is simply very very poor indeed.
Into the void: the unknowns
Now we jump into areas where the Government is ripping it up and starting again, reheating old policy without clarifying the rules or leaving issues to a later date – all of which create uncertainty into an economic market that can do without it.
First of all, I offer my immense sympathy to all planners working centrally in DLUHC (or whatever it will be called next week) alongside the thousands of dedicated planning professionals who have assiduously contributed to making the contents of the Levelling Up & Regeneration Bill (LURB) work for the Real Estate industry. The LURB and its associated puns are no more. In its place comes the apparent ‘liberalisation of the planning system’ that involves the ‘streamlining of consultation and approval requirements’ via a new Planning and Infrastructure Bill. The only detail we have so far is that the Bill will:
“accelerate priority major infrastructure projects across England, by: minimising the burden of environmental assessments; making consultation requirements more proportionate; reforming habitats and species regulation; and increasing flexibility to make changes to a Development Consent Order once it has been submitted. It also announces sector-specific changes to accelerate infrastructure delivery, including: bringing onshore wind planning policy in line with other infrastructure to allow it to be deployed more easily in England; reforms to accelerate road delivery through more streamlined consent processes; and giving telecoms operators easier access to telegraph poles on private land.”
This is alongside the delivery of new National Policy Statement for energy, water resources and national networks. All that effort over the past two years gone, with no proper detail over what comes next for the industry to grapple with. It is no wonder we do not deliver anywhere near 300,000 homes per year and is no way to treat such an important societal issue.
Expect Tees Valley to be one of the UK’s first designated ‘Investment Zones’
Next, the Plan makes 25 separate references to ‘Investment Zones‘ – a new policy lever to provide ‘time-limited tax reliefs (10 years), and planning liberalisation to support employment, investment and home ownership.’ It suggests that the Government is in discussion with a number of areas for ‘designation’ and that a number of incentives are ‘under consideration’ – but that it is subject to a rapid Expression of Interest process ‘open to everyone’. Another competition then for something that hasn’t been created yet.
The incentives that are being considered look very similar to former Enterprise Zones that were abolished in the middle of the past decade, as outlined on Pages 17 and 18:
• Business rates – 100% relief from business rates on newly occupied business premises, and certain existing businesses where they expand in English Investment Zone tax sites. Councils hosting Investment Zones will receive 100% of the business rates growth in designated sites above an agreed baseline for 25 years.
• Enhanced Capital Allowances – 100% first year allowance for companies’ qualifying expenditure on plant and machinery assets for use in tax sites.
• Enhanced Structures and Buildings Allowances – accelerated relief to allow businesses to reduce their taxable profits by 20% of the cost of qualifying non-residential investment per year, relieving 100% of their cost of investment over five years.
• Employer National Insurance contributions relief – zero-rate Employer NICs on salaries of any new employee working in the tax site for at least 60% of their time, on earnings up to £50,270 per year, with Employer NICs being charged at the usual rate above this level.
• Stamp Duty Land Tax – a full SDLT relief for land and buildings bought for use or development for commercial purposes, and for purchases of land or buildings for new residential development.
If they end up as reheated Enterprise Zones, their economic effect is likely to be limited – although, from personal experience, they were always welcomed by commercial occupiers that directly benefited. Centre for Cities produced a full assessment on the impact of Enterprise Zones which the Government would do well to read here. We await to see what form they take across the UK.
A number of other issues are also subject to ‘reserved matters’, including a review on making the tax system simpler; further reviews of R&D tax reliefs; a vision to ‘unlock homeownership for a new generation’; further plans to support ‘digital rollout’; and the detail on the ‘level of deregulation for the streamlined mechanism for securing planning permission’ in proposed Investment Zones. Ultimately there’s lots of intention with very little detail or timescales.
Andrew Marr’s views appear to be similar to ours!
A choppier economic outlook
The financial markets were unconvinced by the announcement and neither were seasoned commentators – marked by a fall in the FTSE 100, a marked drop in the value of the pound against the dollar and the euro and the genuine bemusement of economists. As Duncan Weldon pointed out:
“I’ve been following U.K. budgets for 20 years or so. I have often profoundly disagreed with the decisions made. But I’ve always at least – sort of – understood the logic behind them. Today is a new for me. I genuinely don’t understand the decision making process.”
With this response comes worries over rising interest rates for the Government to service its rising debt level – and further questions of what ends up being cut (or outsourced?) to maintain what has been announced today.
Our view is that this package of measures is unlikely to have a long-term positive effect on the UK economy or most of its workers and residents and that some of its proposals (and their lack of detail) are likely to have the opposite impact. Given the amount of public borrowing to finance it, this is a quite staggering achievement.
So what can we do about it? Given the plan’s ideological thrust, taking on the Government over its tax plans is unlikely to yield any result. What will yield results though is making the case to influence the unknowns – pushing reforms to encourage the rapid adoption of local plans and to increase public sector resourcing through any new Planning Bill; co-designing what effective Investment Zones look like, including looking to Europe for practical recent experience; and in continuing to lobby Government for a National Retrofit programme to both act as a national economic stimulator and a decarbonisation catalyst. Get in touch with us if you want to discuss any of these points in further detail.
Huge thanks to Simon Ricketts and Sam Stafford for inviting Iain Thomson to be part of a joint #PlanningLawUnplanned/#50ShadesOfPlanning discussion on #clubhouse at 6 pm on Tuesday 27 September 2022 where this will be discussed in more detail; expect trenchant views. In the meantime, you can find the Growth Plan and its appendices here.
