Summary of Fiscal Statement

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Growth Plan 2022 – Summary

Top line announcements

• Investment zones – The government will work with the devolved administrations and local partners to introduce Investment Zones across the UK. Investment Zones aim to drive growth and unlock housing. Areas with Investment Zones will benefit from tax incentives, planning liberalisation, and wider support for the local economy.
• National Insurance – Reduction of National Insurance Contributions (NICs) rates by 1.25 percentage points from November and cancelling the Health and Social Care Levy coming in from April 2023. This will save 28 million taxpayers an average of £330 a year. This measure will also make it cheaper for businesses to employ more staff being worth an average of £9,600 for over 900,000 businesses.
• Corporation Tax – The previously announced planned increase in the UK Corporation Tax rate from 19% to 25% that was due to take effect in April 2023 will not go ahead. Companies will continue to pay 19% on their taxable profits. This will maintain a competitive business tax regime, which will support investment, innovation and economic growth in the UK.
• Bankers’ Bonuses – The Prudential Regulation Authority will remove the current cap to bankers’ bonuses. Currently the cap limits remuneration of certain bank staff to 100% of their fixed pay (or 200% with shareholder approval). Pay in bonuses aligns the incentives of individuals with those of the bank, in turn supporting growth in the UK economy.
• Stamp Duty – From 23 September the Stamp Duty Land Tax (SDLT) will be doubled to £250,000 for all home purchases. The threshold for first-time buyers 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 to £625,000.

Political Summary
There were those who thought Liz Truss would campaign in the leadership contest as a Thatcherite, free market, deregulatory Conservative to appeal to Tory members and then, when secure in No10, tack her sails to the wind and govern in the centre ground.    

Today’s fiscal statement proves this analysis to be entirely false. It shows that Truss and her Chancellor, Kwasi Kwarteng, are more radical and ambitious for reform than any Tory government in recent political history. 

Kwarteng set out a wide-ranging package of tax and supply side reform which he hopes will have a profoundly positive impact on the British economy: from cutting taxes and duties – including the abolition of the 45p rate and cutting stamp duty, to removing regulations on business, investment zones, reforming planning laws (to ‘get out of the way and get Britain building’), and reform welfare rules and strike laws.

To call this a gamble doesn’t nearly capture it. Truss and Kwarteng have bet the farm on a vision of economic conservatism that has until now existed largely in the pamphlets of free market Tory think tanks. And they have paid for it entirely from borrowing, at a time when inflation is high, the pound is taking a battering on the foreign exchange markets, and as households endure the worst cost of living crisis in living memory.

Truss’s hope – and belief – is that in under two years’ time, at the next election, the economy will have rebounded, growth will be up, the country will be out of the energy crisis and the public will be optimistic about the future. Rather than blame the government for individually unpopular measures, this strategy expects the electorate will reward her for her ambition and radicalism.

Labour will sense opportunity – and have no shortage of attack lines when it comes to their party conference this weekend. But the Conservatives will head into the conference season confident that they have made clear their vision for what a truly conservative government should deliver. 

Market Reaction

Market reaction to the Chancellor’s Growth Plan has been negative so far. The pound has fallen to below $1.12, the lowest since 1985, on fears in the City that the extra borrowing needed to fund the tax cuts will put additional pressure on Sterling and increase import price inflation. UK government bonds fell sharply as investors braced for a flood of new debt sales to fund the package of tax cuts and energy subsidies – the 10-year gilt yield soared 0.2 percentage points to as much as 3.7% the highest level since 2008. There’s speculation that the Bank of England may react to this with another outsized rate hike in November, with money markets now pricing in at 50% the possibility of 100 basis point rate rise.

Shares in retail, consumer companies saw an initial uptick on the hopes that the income tax cuts and vat free shopping for tourists should boost revenues, as did housebuilders as investors priced in a more robust housing market on the stamp duty reduction. However, this initial rise has been etched out along with the wider market, with the FTSE 250 down 1.5% and the FTSE 100 down 1.7%.

Sector breakdown

Taxation and General Business

• Kwarteng confirmed that the Government will make permanent the temporary £1 million level of the Annual Investment Allowance. This means businesses can deduct 100% of the costs of qualifying plant and machinery up to £1 million.
• Research and Development Tax Reliefs: pure mathematics research will be brought into the scope of the reliefs. Cloud computing and data will now count as new qualifying costs, and the relief will be refocused towards inwards innovation in the UK.
• Dividends Tax Rate: the Government will reverse the 1.25 percentage point increase in dividend tax rates from April 2023.
• The Government will cancel the planned increase in the Diverted Profits Tax to retain the rate at 25%, keeping the current 6% differential with the main rate of corporation tax.

• IR35: the 2017 and 2021 reforms to the off-payroll working rules (known as IR-35) will be repealed from 6^th April 2023. Workers providing their services via an intermediary will be responsible for determining their employment status and paying appropriate tax and NICs.
• Chris Skidmore MP is chairing a review for the Government into how to deliver on the UK’s net zero commitment while “maximising economic growth and investment, supporting energy security, and minimising the costs borne by businesses and consumers”, reporting back by the end of 2022.

Energy

• The government has announced a significant package of support to reduce the pressure from rising energy prices on households and businesses across the UK.
• To provide immediate support for households, an Energy Price Guarantee (EPG) will cap the unit price that consumers pay for electricity and gas. Meaning the average household will pay no more than £2,500 per year for a period of two years from October 2022, and is expected to save at least £1,000 a year, although savings for individual households will vary according to their energy use. 
• The government will deliver £150 of the savings by covering the environmental and social costs, including green levies, currently included in domestic energy bills for two years. This will be in addition to the £400 support all households will receive from the Energy Bills Support Scheme (EBSS) over the coming winter.  Together saving an average of £1,400 per typical household.
• The government will also provide an additional payment of £100 to compensate for the rising costs of alternative heating fuels for UK households not able to receive support for heating costs through the Energy Price Guarantee, for example if they are living in an area of the UK that is not served by the gas grid.  
• The £40 billion Energy Markets Financing Scheme, delivered with the Bank of England, will help to address extraordinary liquidity requirements faced by energy firms from high and volatile energy prices. The scheme will provide a backstop source of additional liquidity to energy firms in otherwise sound financial health to meet extraordinary variation margin calls. It will be limited to those making a material contribution to the liquidity of UK energy markets and who are thereby systemically important to the UK economy. 
• The North Sea Transition Authority will shortly launch a new oil and gas licensing round. This is expected to deliver over 100 new licenses. The government has also announced an end to the pause on extracting reserves of shale. 
• The government will unlock the potential of onshore wind by bringing consenting in line with other infrastructure. By 2023 the government is set to increase renewables capacity by 15%, supporting the UK’s commitment to reach net zero emissions by 2050.
• The government will bring forward legislation to implement new obligations on energy suppliers to help hundreds of thousands of their customers take action to reduce their energy bills, delivering an average saving of around £200 a year. This help will be worth £1 billion over the next three years, starting from April 2023. Support will be targeted at those most vulnerable, but will also be available for the least efficient homes in lower council tax bands. 
• The government will also imminently open applications for up to £2.1 billion over the next two years to support local authorities, housing associations, schools and hospitals invest in energy efficiency and renewable heating.

Financial Services

• Kwarteng reiterated that the Government considers the independence of the Bank of England to be “sacrosanct.”

• The Government will accelerate reforms to the pension charge cap so that it will no longer apply to ‘well designed’ performance fees. The Government will also provide up to £500m to support new innovative funds designed to catalyse investment from pensions schemes and other investors into the UK’s science and technology businesses, through the new Long-term Investment & Science (LIFTS) competition.
• On bankers’ bonuses, Kwarteng said that all the bonus cap did was to push up the base salaries of bankers and never capped total remuneration. Consequently, he confirmed the Government will work with the PRA to remove the bonus cap.
• Kwarteng also confirmed that the Treasury will “set out a package of ambitious regulatory reforms” later in the Autumn. This will include the Government plan for repealing EU law for financial services and replacing it with rules tailor made for the UK, and scrapping EU rules from Solvency II.
• The scheduled change to the rate of the Bank Corporation Tax Surcharge will be cancelled, keeping the rate of tax on profits paid by banks and building societies at 27%. The increase in the Surcharge allowance to £100 million will go ahead as planned. Some of the technical provisions for the super-deduction will be amended as a result of the cancelled surcharge rise, to ensure that the relief still operates as intended.
• The Government is increasing the generosity and availability of the Seed Enterprise Investment Scheme (SEIS) and Company Share Option Plan (CSOP). It remains supportive of the Enterprise Investment Scheme (EIS) and Venture Capital Trusts (VCT) and “sees the value of extending them in the future.”

Transport

• The Chancellor has set out a number of priority projects for acceleration across the UK, a number of which focus on transport infrastructure. 
• Kwarteng further reiterated his commitment to focus on delivering the government’s wider infrastructure priorities, such as HS2. Delivering these projects, through both legislative and non-legislative reforms, to drive economic growth and prevent delays to the delivery of economic infrastructure.
• Minimum Service Levels – The government will introduce legislation that will ensure Minimum Service Levels can be put in place for transport services, limiting the impact that industrial action can have on the public’s ability to make the journeys that are essential for day-to-day life, and to make it easier to settle industrial disputes by ensuring meaningful employer pay offers are put to employees.

Infrastructure

• The Chancellor said that the UK’s planning system is too slow, and committed to accelerating the delivery of priority major infrastructure projects across the country, as a vital means of driving the UK’s economic growth and delivering Net Zero.
• Planning legislation: New legislation will be brought forward in the coming months to address barriers to new infrastructure, by:
  • reducing the burden of environmental assessments
  • reducing bureaucracy in the consultation process
  • reforming habitats and species regulations
  • increasing flexibility to make changes to a DCO once it has been submitted
  • Review of surplus government land to build homes
• Sector specific changes: The Government will introduce targeted changes to accelerate delivery of infrastructure, including:
• Prioritising the delivery of National Policy Statements for energy, water resources and national networks
• Bringing onshore wind planning policy in line with other infrastructure to allow it to be deployed more easily in England
• Reforms to accelerate roads delivery, including by consenting more through the Highways Act 1980 and by considering options for changing the Judicial Review system
• Amendments to the Product Security and Telecommunications Infrastructure Bill to give telecoms operators easier access to telegraph poles on private land

• Digital connectivity: Building on upgrades to digital infrastructure through Shared Rural Network and Project Gigabit, the Government will set out its plans on how it will further support digital rollout to drive growth later this year.
• Accelerated infrastructure: The Government has set out a list of infrastructure projects that will be prioritised for acceleration, across transport, energy and digital infrastructure.

Food, drink & retail

• The Government has committed to reviewing frameworks for regulation, innovation and investment that impact farmers and land managers in England. The aim is to ensure that government and industry are working together to strengthen UK food security and maximise the long-term productivity, resilience, competitiveness, and environmental stewardship of the British countryside. The Government will set out its plans later this autumn.
• Alongside the Plan for Growth, the Government has published its response to the Alcohol Duty Review consultation, alongside the draft legislation for consideration. The reforms are intended to improve the current system by making it simpler, more economically rational and less administratively burdensome on businesses. The reforms will be implemented from 1 August 2023.
• The Government is freezing alcohol duty rates from 1 February 2023 to provide additional support to the sector.
• The Government announced it will introduce a digital, VAT-free shopping scheme with the aim of providing a boost to the high street and creating jobs in the retail and tourism sectors. A consultation will take place to establish the approach and design, with the scheme enabling non-UK visitors to obtain a VAT refund on goods bought in the high street, airports and other departure points and exported from the UK in their personal baggage. The Government will introduce the shopping scheme as a digital service for non-UK visitors, removing the previous paper service in place under the EU.

Technology

• The Government will table amendments to the Product Security and Telecommunications Infrastructure Bill to give telecoms operators easier access to telegraph poles on private land, supporting the delivery of gigabit capable broadband.
• Later in the year, the Government will set out its plans on how it will further support digital rollout to drive growth.