Truss and Kwarteng drive change in UK economic policy

Out-Law Analysis | 23 Sep 2022 | 3:35 pm | 2 min. read

The ‘growth plan’ published today by the UK government represents a seismic shift in UK economic policy, will define the political careers of prime minister Liz Truss and her chancellor, Kwasi Kwarteng, and signals renewed support for ‘big business’.

Truss and Kwarteng are staking the house on delivering a growth agenda powered by tax cuts.

The chancellor has announced that the 1.25% increase to National Insurance will be reversed from 6 November and the proposed increase to corporation tax will be cancelled as anticipated.

The planned introduction of a new health and social care levy has also been cancelled, which the Treasury has said will “make it cheaper for businesses to employ more staff”, as have planned duty rises for beer, cider, wine and spirits.

A cut to stamp duty has also been announced to stimulate demand in the housing market and, in a move that wasn’t briefed ahead of the mini-budget, Kwarteng abolished the 45% top rate of income tax for the highest earners and confirmed that the proposed basic rate cut to income tax from 20% to 19% scheduled for 2024 will be brought forward to April 2023.

The unashamedly pro-business approach is also evidenced by the government’s plans to establish investment zones across the UK, within which businesses stand to benefit from a range of tax incentives, such as 100% business rates relief, as well as streamlined planning processes to promote development. Businesses will also be supported with discounted energy bills for six months via the energy bill relief scheme

Kwarteng has confirmed that the cap on bankers’ bonuses has been scrapped, despite the policy being highly contentious in the context of the rising cost-of-living.

A Planning and Infrastructure Bill will be brought forward to address barriers to infrastructure development. Issues the legislation will address include the burden of environmental assessments, bureaucracy in the consultation process, and habitats and species regulatory requirements.

The 2017 and 2022 reforms to IR35 – the off-payroll working rules – will also be repealed from 6 April 2023, and reforms to the pensions charge cap have also been announced with the aim of promoting investment.

This has the feel of a very different administration to the other iterations of Conservative government which have been in office since 2010. This government will clearly be one driven by a laser-like focus on implementing its free-market economic worldview. However, the announcements are not without controversy.

The Office for Budget Responsibility (OBR), which provides the government with independent economic forecasts and independent analysis of the public finances, has not yet been able to assess the impact of the tax cuts and the recently announced energy bill relief. Labour Party shadow chancellor Rachel Reeves described having a fiscal statement on this scale from the government without independent forecasts from the OBR as “unprecedented”.

Meanwhile, the Institute for Fiscal Studies has produced its own independent analysis which estimates that the chancellor’s proposals will put UK public finances on an “unsustainable path” and create a £60 billion per year hole in the UK budget.

Companies will hope that today marks the start of a new, collaborate relationship with government, but will also watch closely the response of the markets, amid concerns around as-yet uncosted measures and the unintended consequences which these may yield.