For further comment or to arrange an interview please get in touch with Max Anderson: max@brightblue.org.uk or 07850 684474.
Commenting on The Growth Plan 2022, Ryan Shorthouse, Chief Executive of Bright Blue, said:
“The Chancellor wants to send dramatic signals that Britain under a new Conservative Government is changing course and going for growth.
“The most controversial policies – cutting the additional rate of tax, corporation tax and the cap on bankers’ bonuses – are unlikely to have substantial economic effects, but they are politically potent: reinventing the Tory brand, winding up the Left and showing this Government unashamedly means business.
“The dramatic tax cuts announced today show a steely determination to get money moving to catalyse economic activity, regardless of the starkly poor distributional effects. Balancing the books is now seen as a Treasury fixation that will become secondary to the aim of going for growth. The new Chancellor is borrowing big, basically.
“This strategy is not particularly conservative; last decade, the Tories were all about fiscal discipline. But, with no qualms about tax cuts that will disproportionately benefit high earners and large companies, this Government is not especially socially democratic either. Most of the tax cuts could have been better targeted, as they were – admittedly – for today’s Stamp Duty cuts.
“There is real risk in all this radicalism. As interest rates rise, the cost of servicing government debt is becoming more expensive. The value of sterling has plummeted. If the historically high borrowing becomes seen as unsustainable, market confidence in Britain will fall and taxpayers will pay a painful price. There is a historical warning here: when the Conservative Chancellor Anthony Barber pursued a similar tax-cutting, growth-getting budget, inflation soon spiralled and Britain became the ‘sick man of Europe’ in the 1970s.
“After twelve years of running the country, the Tories desperately need to establish a record of delivery quickly if they want to cling on to power. Knowing this, the Prime Minister and Chancellor are going for broke.”
The Growth Plan 2022 adopted five Bright Blue policies:
- Planning constraints on onshore wind will be relaxed.
- The rise in employers’ National Insurance Contributions, and the employer’s element of the Health and Social Care Levy, have both been cancelled.
- The generosity and availability of the Seed Enterprise Investment Scheme (SEIS) will be increased.
- The Enterprise Investment Scheme (EIS) and Venture Capital Trusts (VCT) will be extended.
- The Green Levy will be maintained but paid for via taxpayers.
- Stamp Duty was cut for nearly all first-time buyers.
Income Tax
- Abolishing the additional rate of Income Tax in April 2023.
- Cutting the basic rate of Income Tax to 19p in April 2023.
Sam Robinson, Senior Research Fellow at Bright Blue, said:
“Today’s cuts to Income Tax add yet more to the already enormous bill that the Government’s policies are racking up. There is at least a clear logic behind this: taxes on work should be cut. This principle is right. But when it comes to Income Tax, it would have been far better to do this by raising the starting threshold for the basic rate.
“Abolishing the additional rate will make Income Tax notably less progressive. The Government is betting that this will turbocharge growth to the extent that this doesn’t matter. But the assumption that this will substantially expand working hours and boost spending among high-income individuals is highly optimistic.
“The politicised and untargeted approach that the Government has taken on cutting Income Tax stands in stark contrast to the considered and targeted approach taken to cutting Stamp Duty. The Government should really be looking to maximise the economic benefit per pound of tax revenue cut, and it’s not at all clear that it is doing this with its reforms to Income Tax.”
National Insurance
- Cancelling the Health and Social Care Levy from April 2023.
- Cancelling the interim rise in National Insurance.
Sam Robinson, Senior Research Fellow at Bright Blue, said:
“There is nothing inherently wrong with cutting National Insurance. In fact, government should aim to reduce taxes on work as a matter of principle. But this needs to be done in a fiscally responsible and targeted way. A tax cut on this scale should be at least partly funded by changes elsewhere. What we currently have is a £13 billion giveaway that does little to help households most in need of extra money this winter, since earlier in the year the Government raised the Primary Threshold for paying National Insurance which meant that the lowest earning 70% of payers wouldn’t pay more as a result of the introduction of the Health and Social Care Levy.
“Focussing on cutting employer NICs more deeply would be a better way than what has been announced today of reducing taxes on work, since it would help businesses by reducing staffing costs and support workers, especially the lowest paid, through increases to their pay packets or by creating more jobs over the long term.”
Corporation Tax
- Cancelling the planned rise in the headline rate of Corporation Tax, maintaining the rate at 19% from April 2023.
- The temporary £1 million level of the Annual Investment Allowance will be made permanent from April 2023.
Sam Robinson, Senior Research Fellow at Bright Blue, said:
“Cancelling the planned Corporation Tax rise is, ultimately, betting a great deal of foregone tax revenue on very uncertain economic gains. At a cost of £17 billion a year it comes with a hefty price tag. But the evidence that lower headline Corporation Tax rates spur business investment is, at best, mixed.
“It is also worth noting that, since small companies were unaffected by the planned rise in Corporation Tax, the changes announced today will mostly benefit larger companies.
“There are better policies for encouraging business investment. Rather than cutting the headline rate of Corporation Tax, the Government could instead move to the full immediate expensing of capital investment in new plants and machinery, enabling companies to write off capital expenses against their tax bill. This is a much more targeted way of achieving what the cut to the headline rate aims to do.”
Stamp Duty
- Doubling the level at which all people begin paying Stamp Duty from £125,000 to £250,000.
- Increasing the level at which first-time buyers start paying Stamp Duty from £300,000 to £425,000.
- First-time buyers will be able to access relief when they buy a property costing less than £625,000 rather than the current £500,000.
Sam Robinson, Senior Research Fellow at Bright Blue, said:
“Today’s changes to Stamp Duty are certainly not without risk, but they are welcome. Stamp Duty is one of the most ill-conceived taxes in the country, so cutting it is a step forward in improving property taxes. This has, rightly, been paired with substantial and targeted support for first-time buyers – considering their affordability constraints, they need extra support to compete against property investors in the purchasing market.
“But changing Stamp Duty should be the start and not the end of the Government’s ambition on housing policy. In the absence of other policies to boost supply, cutting Stamp Duty risks raising house prices further, even when they have never been less affordable. Today’s cut needs to be followed up with an ambitious drive to increase the supply of housing, whether or not that involves targets from central government. And we cannot keep ignoring the meaningful and necessary reforms that should be made to Council Tax to ensure it is much more progressive.”
Investment zones
- Businesses in designated areas in investment zones will benefit from 100% business rates relief on newly occupied and expanded premises. Local authorities hosting Investment Zones will receive 100% of the business rates growth above an agreed baseline in designated sites for 25 years.
- Businesses will receive full stamp duty land tax relief on land bought for commercial or residential development and a zero rate for Employer National Insurance contributions on new employee earnings up to £50,270 per year.
- There will be a 100% first year enhanced capital allowance relief for plant and machinery used within designated sites and accelerated Enhanced Structures and Buildings Allowance relief of 20% per year.
- There will be designated development sites to both release more land for housing and commercial development, and to support accelerated development. The need for planning applications will be minimised and where planning applications remain necessary, they will be radically streamlined.
Sam Robinson, Senior Research Fellow at Bright Blue, said:
“If designed well, new Investment Zones could provide an effective Truss twist on levelling up. But investment zones are not a new idea, and the evidence on their effectiveness is mixed: to some extent, they relocate rather than generate economic activity.
“If anything, a better approach would be to take the best policy ideas from the proposed investment zones, particularly reforms to the planning system and enhanced investment allowances, and apply them more widely. These particular policies have the potential to energise businesses up and down the country, not just in specific areas.”
EU regulation
- Automatically sunset EU regulations by December 2023, requiring departments to review, replace or repeal retained EU law.
Sam Robinson, Senior Research Fellow at Bright Blue, said:
“Applying sunset clauses to EU legislation is a good idea to bring rigour and discipline to policymakers, and to make the most of Brexit. There is no reason why this approach shouldn’t be applied more generally, in particular to tax reliefs, which are incredibly expensive yet subjected to shockingly low levels of scrutiny. As with EU regulation, every few years tax reliefs should be subject to a concrete decision: review, replace or repeal.”
Welfare
- Increasing the Administrative Earnings Threshold to 15 hours a week at National Living Wage for an individual Universal Credit claimant (and 24 hours a week for couples) from January 2023.
- Strengthening the sanctions regime.
- Providing additional work coach support to new, eligible over 50s claimants.
Anvar Sarygulov, Head of Research at Bright Blue, said:
“Strengthening conditionality requirements for some people already in work will have a marginal impact on the labour market. It is inactivity, not underemployment, that is the main economic challenge. The increasing number of working-age adults not being able to work because of health issues must be addressed at the root of the issue, not by the time they start claiming benefits.”
Onshore wind
- Bringing onshore wind planning policy in line with other infrastructure to allow it to be deployed more easily in England.
Joshua Marks, Senior Researcher at Bright Blue, said:
“A lack of any substantive onshore wind development since 2015 is bad for our energy security and sustainability. The current rules have allowed a single dissenting voice to obstruct plans and stop development. The Growth Plan’s commitment to changing this, so it is in line with the planning rules of other infrastructure projects, will energise onshore wind development and solidify our path to net zero. However, care must be taken to ensure that other environmental issues, such as the impact developments have on local habitats and biodiversity, are not sacrificed in the process.”
Green Levy
- The government will temporarily cover environmental and social costs, including green levies, currently included in domestic energy bills for two years.
Joshua Marks, Senior Researcher at Bright Blue, said:
“The Government’s decision to fund the Green Levy through the public purse rather than scrap it from bills completely is welcome in order to continue our investment into green energy measures that support the poorest households. Making taxpayers rather than billpayers through a flat fee pay for it also makes the Green Levy much fairer.”
Notes to editors:
To arrange an interview with a Bright Blue spokesperson or for further media enquiries, please contact Max Anderson at max@brightblue.org.uk or on 07850 684474.
- Bright Blue is the independent think tank and pressure group for liberal conservatism.
- Bright Blue’s Board includes Diane Banks, Philip Clarke, Alexandra Jezeph, Richard Mabey,
- and Ryan Shorthouse.
- Our advisory council can be found here. We also have 211 parliamentary supporters. Members of our advisory council and our parliamentary supporters do not necessarily endorse all our policy recommendations, including those included in this press release.
[Image: Gov.uk]
