The new Chancellor’s statement confirmed the much-trailed expectations for a new economic strategy – with a combination of measures that cut taxes, removed regulations and increased government borrowing. It was the largest tax-cutting budget in 50 years – greater even than Nigel Lawson’s 1988 Budget – with the Institute for Fiscal Studies stating it was up to 50% bigger than had been expected even 24 hours ahead of the announcement.
With an introduction that highlighted the government’s projection that their energy support policy would cost £60 billion in the next six months alone, the giveaways continued. Caps on bankers’ bonuses, National Insurance rises, increases in Corporation Taxes and Alcohol Duties, and even the Additional Rate of Income Tax were all swept away, with further cuts to the basic rate of income tax, changes in stamp duty thresholds and more also being brought forward.
Yet beyond the headline giveaways and current market focus, there were further elements that will have a long-term impact on a rather rapidly created policy platform. Beyond pre-announced measures on energy bills for households and businesses, the Chancellor announced a new Energy Supply Taskforce that aims to negotiate long-term agreements with major gas producers. The government also confirmed earlier indications that it is working to reform the market structure where gas sets the price for all electricity – instead, the government intends to move to a system where electricity prices better reflect the UK’s current mix of energy sources, which would bring down consumer bills on current gas prices.
While Enterprise Zones had been a push of previous Conservative administrations, the government will now look to introduce Investment Zones across the UK. The ambition for these new zones is to accelerate growth and deliver more housing in these areas with tax incentives, planning liberalisation, and broader support for the local economy. So far, 38 local authority areas have expressed an interest, ranging from mid-size districts to larger combined authorities.
For 138 infrastructure projects, there was a commitment that they would be accelerated as fast as possible with a new Planning and Infrastructure Bill featuring, aiming to get the vast majority starting construction by the end of 2023. While exact measures are yet to be confirmed, it is expected that a combination of planning reform, regulatory reform and process changes (such as a new approach to development consent processes) will be deployed – but that in itself will be undoubtedly controversial. Roads and transport, alongside opportunities such as Freeports, headline these measures – with more use of legislative devices to push through plans and a commitment to look at the Judicial Review process.
From an energy perspective, there were 21 schemes named, alongside two on improving the fast charging network. These included the two major nuclear schemes, five hydrogen schemes, two carbon capture and storage, five for oil and gas, and seven for offshore wind. Notably – there was no mention of onshore wind and solar in these schemes, but onshore wind had a hidden bonus in the documents – bringing onshore wind planning policy in line with other infrastructure to allow it to be deployed more easily.
There was a small mention of energy efficiency – a potential spend of up to £3 billion over three years on homes and schools, with £1 billion coming from a new scheme from energy suppliers with legislation upcoming to implement new obligations. They also highlighted the prioritising of the delivery of National Policy Statements for energy, water resources and national networks, and a cross-government action plan to reform the Nationally Significant Infrastructure planning system. Missing out was solar – with no mention in the speech or in the documents, in line with the Prime Minister’s own indications of being less supportive in her leadership campaign.
The reaction from the markets so far has been dramatic – with falls in the value of the pound, reaching a record low at one point, and expectations of significant, possibly rapid, rises in interest rates. This was a budget designed to spark a reaction and so far that has not been what the Chancellor had hoped. However, whether the long-term reaction will be as the Chancellor foresaw – a growing, stronger economy, remains very much uncertain and demonstrates how much of a political gamble has been taken.
Topline Points of Interest
- Corporation tax rise cancelled, keeping it at 19%.
- Basic rate of income tax cut to 19% in April 2023 – one year earlier than planned.
- Stamp Duty cuts will mean 200,000 homebuyers will not pay any duties.
- Three steps on energy prices:
- Families: energy price guarantee will cap bills at £2,500 for a typical household.
- Businesses: energy bill relief scheme will reduce wholesale gas prices for all UK businesses, and the public sector.
- Energy prices are extremely volatile, so to support the market, the energy market financing scheme delivered alongside the Bank of England that will provide a 100% guarantee to commercial banks.
- The ‘Energy Price Guarantee’ is estimated to reduce peak inflation by five percentage points.