After a short interlude for the period of National Mourning, the new Truss government is this week back to setting out its plan and identity.
After speeches in New York for the Prime Minister and NHS waiting list announcements from the new Health Secretary, it’s the turn of the new Chancellor, Kwasi Kwarteng, to take the spotlight in his first fiscal statement. What a difference a change of party leader makes.
Truss and Kwarteng are clearly overhauling the government’s priorities with a radical approach. A new focus on economic growth, not money redistribution.
Key points for our sector:
- New measures to speed up planning process to be announced
- Stamp duty threshold raised to £250,000 – supporting housebuilders through a growing market
- Increase in National Insurance reversed benefiting businesses and individuals
- Low-tax zones set up across the UK
Dash for growth
In a dash for growth, her chancellor has announced a reversal of the increase in corporation tax (to lure in international corporations post-Brexit), incentives in investment zones and a cut in stamp duty, increasing the threshold to £250k (to support the house-building industry through a growing market, who’s profit margins have been squeezed thanks to inflation and staff shortages). The hope is this extra profit, and the tax savings will morph into much higher capital investment. Though the unlimited bonuses for city bankers is more likely to turn into magnums of Cristal.
For the built environment, lower stamp duty is likely to lead to a strengthening of the housing market, when many (admittedly wrongly) have for some time been expecting to slow-down. Though many in London and the South East would have been looking for reductions in the higher tiers of the tax, the 10% and 12% rates hit this area disproportionally.
Radical planning reform?
Many housebuilders will be equally watching what happens to the Levelling Up and Regeneration Bill, which had its committee stage extended. Kwarteng’s announcement of a new Planning Bill to remove restrictions and streamline planning processes is definitely of interest. Some of this was part of the Levelling Up Bill, does this new bill sound the death knell for that?
More money for businesses and individuals
The new increase in National Insurance came into force in April, 1.25% across the board. In July the point at which people started to pay National Insurance was raised in line with Income Tax. Now, from 6 November, the 1.25% is reversed. This benefits businesses as well as taxpayers. Truss has said she is prepared to be unpopular in order to grow the British economy and admits her tax cuts will disproportionally benefit the rich during the cost-of-living crisis. This is evident in the scrapping of the additional rate Income Tax, the 45% rate for the highest earners is going. She promised to be a tax-cutting PM during the leadership election, and today she’s pushing that agenda through.
A risky gamble?
The biggest risk raised by economists and think tanks, such as the Institute for Fiscal Studies, is that the hundreds of billions of pounds spent over the next 2 years won’t create an economy growing fast enough to fill the funding gap. The Bank of England is reigning in its asset purchasing. If markets are spooked, the cost of borrowing will climb and deficits of £100 billion per year could become unsustainable. Rates for government borrowing have already increased today since the Chancellor’s statement to around 4%.
It’s a gamble, and Liz Truss is placing all her chips on one big bet. The government has returned to the heady days of Thatcherite tax-cutting policies, very popular with the Conservative membership. She’s going for broke for the next election, putting more money into the pockets of workers and businesses. These are going to be interesting times.