As a part of this year’s #ChallengePovertyWeek, we wrote a blog where we explain why women are being hardest hit by the cost-of-living crisis & discuss actions that need to be taken to #TurnTheTide on women’s poverty.
Read now here: https://bit.ly/3SZG3br
Stark research findings released today by national charity Family Fund show that families raising disabled, or seriously ill, children and young people across the UK now face serious financial jeopardy and are struggling to survive, due to the scale of the cost-of-living crisis.
“The Cost of Caring” covers research with 4,264 families across the UK, with a disabled child, showing that nine in 10 families are struggling, or falling behind on their regular household bills and many are forced to forego living essentials such as food, heating, basic furniture like beds, flooring, washing machines and fridges, to try to make ends meet.
Over half of parents and carers (54%) report skipping or cutting the size of their meals because there wasn’t enough money for food (a 9% increase since September 2021) and more than one in ten (13%) say they have had to cut back on items that are essential for their disabled children.
Four in five families (83%) raising a disabled child or young person are in debt, with rising debt levels for two in five families (43%) polled, and over 40% report they can’t afford to keep accommodation warm – a 13% increase since last December.
On average, families raising a disabled child live on £17,000 a year and spend 60 hours a week caring for their disabled children, with one third caring for over 100 hours a week. Families receive only one hour a week of respite and support, on average, and less than one in four parents and carers are able to work full time, with over half not able to work at all.
Family Fund’s report highlights the, now, unsustainable strain on families raising disabled and seriously ill children and young people , as they try to cover sky-high costs on top of severely reduced incomes due to intense caring responsibilities, three times higher costs to look after a disabled child and critical levels of debt.
With sustained cuts to support services, which have not recovered post-pandemic, families are now having to pay, themselves, for therapies and specialist equipment for their children, such as educational and sensory items and toys.
As the UK’s largest grant-making charity for families raising disabled and seriously ill children on the lowest incomes, Family Fund provides essential goods for families including kitchen appliances, clothing, bedding, play and sensory equipment and much-needed family breaks.
Last year, it delivered over 170,919 grants and services, worth over £37 million, to families on low incomes across the UK.
Wider research findings include:
· Almost all families raising disabled children (98%) report paying more than families with non-disabled children due to specialist needs – clothing (74%), food and groceries (73%), technology such as tablets (66%), toiletries and hygiene products (60%) and replacing worn or broken household items (60%);
· In September 2021, families raising disabled children reported an increase in their household bills of, on average, £800 a year. By June 2022, even before current price rises, this increase was over £1,500.
· Three in five families (62%) reported cutting back on play, leisure and recreational activities with their disabled children during the last year;
· In the past year, 50% of families report their disabled children’s physical health has worsened and 68% say their disabled children’s mental health has deteriorated.
· 1 in 5 families report taking on more credit to keep up with existing credit commitments
Cheryl Ward, Family Fund Chief Executive, said: “The outlook for families raising a disabled, or seriously ill, child is now graver than ever. They are unsure how to cope with ever-rising caring costs with winter approaching, they are having to borrow more credit to pay for intense levels of debt and feeling more isolated than ever, with worsening mental and physical health.
“These are families on the lowest of incomes, due to caring for their children round-the-clock and having far-reduced available support services, post-pandemic.
“When caring costs have spiralled so far out of control that families are having to cut back on the very essentials their disabled child needs, something has to change.
“Along with our sector partners, we are urging Government to ensure that family benefits are increased in line with inflation, rather than reducing at a time when the escalating costs of caring are already jeopardising families’ lives.”
West Midlands parent: “How will I be able to keep my disabled child warm for medical reasons…this coming winter when I’m struggling to pay gas and electric in summer?
“How will I afford petrol, which I need as I have two children with physical disabilities including one in a wheelchair. And the cost of food, and availability of safe food for an autistic child if shortages start happening. I worry every day and night over this.”
North West England parent: “Caring for our child is not the issue, she is the light of our lives. Being able to access the right care, education and support in order to provide me the opportunity to work is the key.”
The Cost of Caring features research from the charity’s last four quarterly family polls, from September 2021 to June 2022, ahead of a new September poll coming soon.
Tesco is today announcing a vast new price-lock commitment, freezing the prices of more than a thousand everyday products until 2023, and giving shoppers more ways to spend less and enjoy the festive season.
The products are all included within our mammoth Low Everyday Prices campaign, which covers a wide range of products and brands bought week-in, week-out – from cupboard staples and teatime favourites, to household and health & beauty products.
To help customers make their money go further during the festive season, we’re locking the price of more than a thousand of these products into the new year.
So whether it’s McCain Home Chips for those midweek dinners or a winter pick-me-up with Nescafe Original 3-in-1, our customers can count on Tesco’s price to stay the same until 2023 – helping them spend less on their shopping and more on friends and family this Christmas.
Low Everyday Prices is a key part of Tesco’s commitment to giving customers great value on their shopping – going hand-in-hand with our Aldi Price Match, great value own-brand staples with our Exclusively at Tesco brands and exclusive deals through Clubcard Prices, which together cover more than 8,000 products.
And it’s just one of the ways we’re helping customers make their money go further this Christmas. Our Clubcard Christmas Savers Scheme offers customers a bonus voucher of up to £12 when they save their Clubcard Vouchers towards their big Christmas shop. While our Toy Sale, launched this week, offers savings of up to 50% on kids favourites like Lego and Stickle Bricks, so that families can spread the cost of Christmas.
Tesco UK Chief Executive, Jason Tarry, said:
“We know times are tough for many customers right now, particularly as we head into the winter months. We hope this extended price-lock commitment gives our customers the certainty of knowing that over a thousand household favourites will stay at the same great price for months to come – helping them budget when they need it most.”
As well as helping customers, we’re today also announcing another major investment in our store colleagues – with the second hourly-pay increase this year, and a doubling of our colleague discount to support them this Christmas.
From 13 November 2022, the basic hourly rate of pay in our stores will increase by a further 20p to £10.30 (or £10.98 in London). This means hourly rates at Tesco will have increased nearly 8% this year – building on what was already a record single-year investment in store pay.
And on top of that, we’ll also be doubling our Colleague Clubcard discount to 20% during the key Christmas shopping period from 13-19 December.
This is just one part of our comprehensive package of benefits for Tesco colleagues, which also includes a recently enhanced selection of free food and hygiene products in the Colleague Rooms of our stores, so that colleagues can access a wider range of breakfast, lunch and snack items at no cost.
| Product | Current price – locked until 2023 |
| TILDA PURE STEAMED BASMATI RICE, 250G | £0.95 |
| SKI STRAWBERRY MOUSSE, 4X60G | £1.10 |
| MCCAIN HOME CHIPS, 2.25KG | £4.30 |
| ORAL-B PRO-EXPERT PROFESSIONAL PROTECTION TOOTHPASTE, 75ML | £1.99 |
| HEINZ BAKED BEANS SNAP POTS, 4 X200G | £2.49 |
| NESCAFE ORIGINAL 3-IN-1, 6 SACHETS 102G | £0.99 |
| JOHNSON’S BABY COTTON BUDS, 200 PIECES | £0.95 |
| ROBINSONS ORANGE SQUASH, 1L | £1.75 |
The British Psychological Society has warned of a potential mental health crisis this winter as it publishes new figures that reveal one in two people are experiencing anxiety about being able to pay their bills as a result of the cost of living crisis.
The new findings lay bare the toll the cost of living crisis is having on people’s anxiety and mental health following energy price cap rise this winter and the current economic uncertainty.
The data, collected by YouGov on behalf of the BPS, reveals that 51 per cent of respondents who did not already have a diagnosed mental health condition reported feeling more anxious about being able to pay their bills than this time this last year.
One in five people (21 per cent) without a previously diagnosed mental health condition reported that worrying about money was making them feel depressed, and only just over a quarter of all respondents, (27 per cent), said they felt confident they could get by financially this winter.
Following the energy price cap rise on 1 October, and the turbulent economic situation facing the country, the BPS is sounding the alarm about the potentially devastating impact the cost of living crisis could have on people’s mental health, and the strain this increased anxiety may have on already struggling mental health services this winter.
While the energy bill support from the government is welcome, the BPS has warned currently there is not enough support targeted to those on the lowest incomes, and highlights that as well as energy bills, people are highly anxious about being able to afford food and fuel this winter, (52 per cent of all respondents were concerned about not being able to afford food/groceries over the next year, and 50 per cent were concerned about affording fuel over the next year).
Sarb Bajwa, Chief Executive of the BPS, said: “The cost of living crisis is critical, immediate and severe and disproportionately impacting those that need support the most.
“As well as the practicalities of being able to heat homes and put food on the table, people are also carrying the mental health load of living under this strain. We are incredibly concerned that many simply will be unable to cope, with nowhere to turn to get help as services are already stretched and struggling to cope with soaring demand.
“We urge the government to target support to those on the lowest incomes and benefits, and make sure that there is the necessary funding in place for mental health services so they can try and cope with the inevitable surge in demand we will see this winter.”
The survey highlighted that some groups in society are significantly more anxious about the impact of the cost of living crisis. Those already diagnosed with a mental health condition, women, young people and those from a lower socio-economic status expressed more anxiety.
Key findings reveal:
KWARTENG: ‘WE GET IT – WE HAVE LISTENED’
Chancellor Rishi Sunak has annnounced a humiliating U-Turn on plans to slash the 45p top rate of tax for highest earners.
He tweeted this morning:
For some in Westminster, a week in politics will never have seemed longer. Financial markets are still reeling from the announcement of the £40bn of deficit-financed income tax cuts announced last week.
The ramifications through the financial system are myriad but stem from the decisions of UKG heaping more uncertainty onto markets that were already bracing themselves for a difficult few months.
Our budget response last week referred to the decisions made by UKG as being a gamble. Tax cuts do not necessarily lead to growth, and the additional tax revenues and lower debt/deficit:GDP ratios that would come with that growth. The absence of an OBR forecast, which may have helped reassure the markets that the plans were credible, did not help (and of course, the OBR could have been less supportive of the plans than the Chancellor would have hoped for).
The upshot is that the risk that the UKG will have permanently higher borrowing has increased, leading to a fall in the value of government bonds. Inflation has become even harder to predict and with that the future path for interest rates. All this has real implications for markets that we all come into contact with, including most notably pensions and mortgages.
The tax cuts announced last week were part of a plan for growth that the Chancellor and the PM are holding firm on. The hope is that it will boost the labour supply by incentivising people to work more.
By abolishing the additional rate, it is hoped more high earners people will want to work in the UK. Whether or not it works depends on whether people change their behaviour in light of the tax cuts, or whether other factors override the increased financial incentive.
For example, for basic rate tax payers, there may be structural barriers that constrain their ability to work – the availability of childcare being an obvious example. Additional rate tax payers may not see the tax cut as being substantial enough to make them relocate, or they may not be able to due to visa restrictions.
There are promises of further supply side reforms in the coming months, including on childcare and visas, that may increase confidence that the plan is credible, but at the moment, only a notable few appear to believe it is guaranteed to succeed.
Some of the trailed reforms will apply UK wide, and changes to rules around immigration will be keenly anticipated by many businesses in Scotland.
Others, such as reform in childcare, may not apply in Scotland as provision of publicly funded childcare falls under devolved competence. Increased spending on childcare by Westminster could lead to additional consequentials to Scotland.
However, in terms of the Scottish budget, there is always the risk that additional consequentials from one area are offset by decisions to cut spending in other departments.
That appears increasingly likely. This week, UKG departments have been asked to look for savings in departmental spending, which looks like an attempt to sure up fiscal credibility from the other side of the ledger.
This leaves the Scottish Government, along with everyone else, dealing with more uncertainty than they expected just over a week ago. The Emergency Budget Response from John Swinney has been pushed back to late October, but it will be difficult for the Scottish Government to act decisively until more is known about what the UKG will do next. For that we may have to wait until late November, when we also expect to see OBR’s assessment of the UKG’s plans.
Next week, we will be publishing our quarterly Economic Commentary which will provide insight and analysis on the pressures that were already facing the Scottish Economy.
The events of the last week are having ramifications on the real economy, but there were of course multiple issues that businesses and households were already trying to deal with. Look out for our report on Tuesday 4th October.
Households, businesses and public sector organisations across the country will be protected from significant rises in energy bills, thanks to new government support taking effect from today (Saturday 1 October).
Without Government action, average household energy bills under the energy price cap had been due to rise to around £3,500 a year in October – a rise of 80% on current bills. Next year, they were estimated to increase even further to as high as £6,500.
From today, the Government’s Energy Price Guarantee will limit the price households pay per unit of gas and electricity they use.
It means a typical household in Great Britain will pay around £2,500 per year, starting this month for the next two years – saving an average £1,000 a year on their energy bills.
Households will also see the first instalment of the £400 Energy Bill Support Scheme in their October electricity bill. The discount will be automatically applied monthly in six instalments between October 2022 and March 2023.
Thanks to the government’s support, energy bills will now be close to where they’ve been for the past six months – and it will curb inflation by 5 percentage points, boosting economic growth, controlling the rising cost of goods, and reducing the cost of servicing the national debt.
This necessary intervention makes up the biggest proportion the Government’s fiscal package set out in the Growth Plan.
Prime Minister Liz Truss said: “I know people across the country are anxious about their energy bills, which is why we have acted quickly to help them.
“Livelihoods and businesses were at stake. The government’s energy support limits the price they pay for gas and electricity, shields them from massive bill increases, and is expected to curb inflation too.
“The cost of not acting would have been enormous. To make sure the British public is not left in this position again, we are also fixing the problem at its source by scaling up home-grown energy and reducing reliance on foreign supplies to boost our energy security and independence.”
The UK Government is also urging people today to stay alert to scams and fraudulent messages. There is no need to apply for the schemes, with most customers receiving today’s support automatically through their electricity bill.
Households in Northern Ireland will also receive the same support through the Energy Price Guarantee from November, with support for October bills backdated so they see the same benefit overall.
Those who might live in an area of the UK that is not served by the gas grid or use alternative fuels such as heating oil to heat their home will receive a £100 payment to support them with their energy bills.
Business and Energy Secretary Jacob Rees-Mogg said: “While Putin’s weaponisation of energy has driven energy prices to record highs, we will not let his regime harm this country’s businesses and households.
“Unprecedented government support is beginning this weekend, protecting families and businesses across the country from what was going to be an 80% increase in energy bills this winter.
“I also urge people today to stay alert to scams. This support will reach people automatically and there is no need to apply.”
British businesses have also been experiencing significant increases in energy costs, with some reports of more than 500%. Businesses, charities and public sector organisations will also be protected through the Government’s Energy Bill Relief Scheme from October over the next six months.
This support is equivalent to the Energy Price Guarantee put in place for households and similarly discounts price per unit of gas and electricity, meaning businesses and others will pay wholesale energy costs well below half of expected prices for this winter.
In parallel, the Government is also taking decisive steps to tackle the root cause of the issues in the UK energy market through boosting British energy supply and increasing independence to ensure this doesn’t happen again.
This includes the work of our Energy Supply Taskforce, a new oil and gas licensing round, lifting the moratorium on UK shale gas production, and driving forward progress on nuclear and renewables.
The Scottish Government has launched a new website to help with the cost of living crisis.
The website has a range of information on support available for households facing rising energy, housing and other costs.
Developed by the Scottish Government as a ‘one stop shop’ to help those struggling with the cost of living crisis, the website includes information on help available for households to meet rising energy, housing and other costs.
It also provides details on accessing Scottish and UK social security payments, including online benefit calculators, as well as wider health and wellbeing information.
A Programme for Government 2022-23 commitment, it will be supported by a nationwide media campaign to raise awareness of the website and signpost people impacted by rising costs to the help available.
The website was launched by Social Justice Secretary Shona Robison during a visit to debt help service in Tollcross, run by charity Christians Against Poverty.
Shona Robison said: “I know that people are struggling with the cost of living crisis right now and may not know where to turn for help. Our cost of living website is a trustworthy online resource with information on the wide range of vital support available.
“No one should feel alone in this crisis and this website, along with our campaign, aims to encourage people to find out if they are eligible for the extensive support available to access the advice they need. We want everyone to get all the financial support and help that is available so I would encourage people to apply for the payments they are entitled to – it might be just the lifeline that is needed right now.
“We have allocated almost £3 billion in this financial year to contribute towards mitigating the increased cost of living crisis and the new website highlights the wide range of support at hand. Our package spans a range of support, for energy bills, childcare, health and travel, as well as social security payments that are not available anywhere else in the UK. The website is an important signpost towards them all.
“The cost of living crisis is impacting every household in the UK and the Scottish Government will continue to do everything within its powers and finite budget to ensure people are supported as far as possible.”
Scotland National Director for Christians Against Poverty, Emma Jackson, said: “We are deeply concerned about the impact of rising costs on low income households. Even before rising costs, over a third (36%) of CAP clients had to borrow to meet essential living costs and we know the consequences of problem debt can be devastating for people.
“The new cost of living website from the Scottish Government is a welcome step in helping people to find and access all the vital support that is available to them, including steps to maximise income. People need to know help is available. Now, more than ever, we need to take every action possible to support households who are being hit the hardest by the cost of living crisis.”
Claire (not her real name) is a single parent from Edinburgh who experienced problem debt after her son was born prematurely. She spent a lot of time at the hospital and his health and wellbeing was her primary focus. Due to the stress of this situation she wasn’t able to manage bills or work to earn money and debts began to mount.
Claire’s debt had a significant impact on her mental health. She lived in fear of debt collectors coming to the door and hid the letters in a drawer as she didn’t know how she would be able to pay them. She felt ashamed and embarrassed and for a long time she didn’t know where to turn.
Problem debt had such an impact on Claire’s mental health that she tried to take her own life twice. Claire heard about Christians Against Poverty through her local foodbank and once she met her debt coach she felt like a weight had been lifted and she was able to laugh again. She felt like CAP was her safe place and her befriender became like a mother to her.
Claire was able to go debt free in December 2021, however, she is still struggling on a low income. She already has to travel quite far to shop around and find the cheapest items. She is worried about how she will be able to keep going with rising costs.
She explained: “It’s unbelievable what things cost at the moment, it’s all gone up so much – food, electric, clothes for my son. It all costs so much and right now, I just don’t know how I am going to afford it all. I’ve worked hard to get back on track with my finances, but there isn’t enough to pay for all of these essential things that I need for my son. I don’t want to be in debt again.”
Find information on support available at http://gov.scot/costoflivingsupport
Heating bills are at an all-time high, inflation is on the rise, and the temperature outside is plummeting.
There is no doubt that the necessity to keep warm and the stress of trying to keep up with the rising cost of living will sadly push many people to their breaking point this winter. However, one local business is doing all it can to offer practical help.
Saturday 1st October will see The Leith Collective launch its winter coat exchange across its three Scottish stores. Locals are being urged to donate good quality winter coats and waterproof jackets suitable for all ages and sizes. The coats will be available for anyone to collect at Ocean Terminal, Fort Kinnaird and St Enoch Centre completely free of charge, no questions asked.
The Leith Collective launched its first ever winter coat exchange in January 2022. At the time, it proved to be a genuine lifeline for many local individuals and families unable to afford a warm and comfortable coat to protect themselves from the elements.
Sadly, The Leith Collective founder, Sara Thomson, predicts this winter will be even more challenging for even more people: “We launched the winter coat exchange at the beginning of the year and sadly, here we are again. Except this time, it is even worse.
“Right across Scotland, there are people that are genuinely scared of what this winter may bring. People who now can’t afford even the most basic essentials because the cost of living has skyrocketed. For many people, winter 2022 will be a season of crisis. But we are determined to make a difference, and we know there are countless people in Edinburgh and Glasgow that want to help too.”
The winter coat exchange is not only a practical response to the cost of living crisis, but also to the climate crisis – a cause which lies at the heart of The Leith Collective. The winter coat exchange is a sustainable solution that aims to keep quality clothes out of landfill and in use for longer, promoting a circular economy and reducing the environmental impact of the textile industry.
As a Community Interest Company, all profits from The Leith Collective go towards supporting the community and promoting sustainability through the arts.
The Leith Collective actively supports individuals with mental health or support needs to grow in confidence and gain experience in the workplace, and offers business mentorship to any members of the Collective.
It is hoped that by hosting the winter coat exchange in accessible locations such as Ocean Terminal, Fort Kinnaird and St Enoch Centre, those currently experiencing difficulties will be able to receive a helping hand.
Coats can be dropped off or collected at The Leith Collective at Ocean Terminal, The Leith Collective at Fort Kinnaird, and The Clydeside Collective at St Enoch Centre during opening hours.
FRIDAY’S ‘fiscal event’ contained some of the most substantial tax policy changes seen in recent decades (writes Fraser of Allander’s DAVID EISER). Combined with last week’s announcements on the Energy Price Guarantee and Energy Bill Relief Scheme, this constitutes a huge change in the fiscal outlook.
In this context, the decision not to involve the Office for Budget Responsibility (OBR) is irresponsible. It might be billed as a ‘Growth Plan’, but today’s announcements are a budget in all but name. The OBR plays an essential role in scrutinising tax and spend forecasts, assessing the likely impact of policy announcements on growth, the deficit and debt. Its exclusion from the process weakens transparency around the impacts of the proposals.
The new Chancellor (above) used the first part of his speech to reiterate the government’s unavoidably large interventions in the energy market to protect households and businesses from energy price rises. In the remainder of the speech he announced a host of measures designed to stimulate economic growth through a combination of tax cuts and regulatory changes.
Tax changes – implications in Scotland
There were two ‘tax cuts’ that are more accurately described as reversals in recent or planned increases.
Both of these changes had been pre-announced and apply UK-wide.
The big surprises came on income tax. Here the government announced the biggest reforms (at UK level) since 2009.
Income tax changes and implications for Scotland
Of course, with income tax being devolved, neither of the changes will apply in Scotland. Instead, the Scottish Government will see a smaller reduction in its block grant next year than it was expecting, boosting the resources available to it in 2023/24 (the reduction to the Scottish Government’s block grant is broadly designed to reflect what the UK government would have raised from income tax in Scotland if income tax had not been devolved, and if the UK government income tax policy had continued to apply in Scotland).
In the context of this additional resource through its block grant, the Scottish Government will then need to decide whether and how to respond through its own tax policy.
It could of course keep Scottish tax policy unchanged. This would enable it to use its additional block grant to invest in public services in Scotland. The cost of it doing this politically would be that the gap between Scottish and rUK tax policy would widen substantially. Almost all Scottish income taxpayers would pay more income tax than they would in rUK. A Scottish taxpayer with an income of £29,000 would face liabilities around £160 higher. A Scottish taxpayer with an income of £50,000 would face liabilities almost £2,000 higher (Chart 1, black line).
Chart 1: Potential difference in income tax liability between Scotland and rUK, in 2023/24
Alternatively the Scottish government could mirror UK tax cuts with tax cuts of its own. It could for example decide to reduce the starter, basic and intermediate rates by 1p. This would broadly retain the difference in tax liability for individuals between Scotland and rUK at current levels (Chart 1, grey line). It would allow the Scottish Government to retain its treasured mantra that ‘the lowest income half of Scottish taxpayers pay less tax than they would in rUK’. But such a policy would cost the Scottish government around £400m in foregone revenues.
Other policy decisions are possible. The Scottish government could decide to cut just the starter and basic rates in Scotland, rather than the intermediate rate as well, at a revenue cost of around £250m.
How the Scottish Government responds to the UK Government’s abolition of the Additional Rate will also be interesting. The Scottish Fiscal Commission is likely to forecast that abolition of the Additional Rate wouldn’t be extremely costly in revenue terms (there are expected to be around 22,000 Additional Rate taxpayers in Scotland in 2023/24 so charging them a few pence less tax on their income above £150k might not have a significant affect in aggregate, particularly if it is assumed, as the SFC will, that the tax reduction will induce some element of a positive behavioural response).
The Additional Rate policy therefore puts the Scottish Government in a difficult political position. If it retains the Additional Rate it will be accused of undermining the ‘competitiveness’ of the Scottish economy, for little direct revenue gain (without any changes to existing policy, a taxpayer with an income of £200,000 would face an additional £5,900 in income tax liabilities in Scotland compared to an equivalent taxpayer in England).
But abolition of the Additional Rate would provide a significant tax cut for the highest income 0.5% of the Scottish adult population (an individual with income of £200,000 would be better off to the tune of £2,500 if the Additional Rate is abolished). The regressivity of a cut to the top rate in Scotland is difficult to reconcile with the Scottish Government’s aspirations for progressivity.
Stamp Duty changes and implications for Scotland
The Chancellor also announced changes to Stamp Duty in England and NI, amounting to an increase in the threshold at which Stamp Duty applies to residential transactions.
As with income tax, these changes will not apply in Scotland. As with income tax, the changes to English policy will pose dilemmas for the Scottish Government when considering its policy on the Land and Buildings Transaction Tax.
The Scottish Government has until now set LBTT in such a way that homes sold in Scotland for less than around £335,000 pay less tax than an equivalent property in England. Above this price, transactions in Scotland face noticeably higher tax liabilities. The changes announced by the UK government today mean that – if there are no changes to the existing Scottish LBTT rates – all property transactions in Scotland would face higher tax liabilities than they would in England (see Chart 2).
The Stamp Duty cuts in England will generate some additional resources for the Scottish Government via its block grant. In ballpark terms the increase in resource might be around £80m. It could use this additional resource to fund public services, or to cut LBTT rates in order to maintain existing tax differentials.
Chart 2: Residential property transactions tax liabilities in Scotland and England
Investment zones – an option for Scotland but at what cost?
The UK government announced the establishment of several dozen ‘investment zones’. It is hoped that these zones will ‘drive growth and unlock housing… by lowering taxes and liberalising planning frameworks’.
Policies implemented within the investment zones will include business rate reliefs for newly occupied or expanded premises, and stamp duty relief on land bought for commercial purposes, and a zero-rate of employer National Insurance Contributions for new employees earning below £50,270.
The hoped-for impacts of these investment zones on UK-wide economic activity – as opposed to their effect on displacing economic activity within parts of the UK – is based more on hope than on empirical evidence.
Several dozen potential zones have been identified in England. The UK government says that it will work with the Scottish government and local authorities to identify zones in Scotland.
What is not yet clear is how the costs of investment zones in Scotland – in the form of reliefs on business rates and stamp duty (which are devolved) and NICs reliefs (which are not devolved) – will be distributed between the Scottish and UK governments. The Treasury’s costing document does not seem to give an indication of the funding associated with the planned investment zones in England, so it is difficult to get a sense of the fiscal scale of these interventions at this stage.
U-turn on IR35
In another regulatory reform design to unlock growth, the chancellor announced the repeal of the anti-avoidance legislation commonly known as IR35. This legislation was designed to reduce so-called “disguised employment”, whereby workers could work long-term for businesses as self-employed contractors rather than employees – and in so-doing reduce the tax liabilities faced by both themselves and the company that they were contracted to.
The IR35 regulations were introduced for public authorities in 2017, and for medium and large enterprises in 2021. The regulation has big impacts on the nature and shape of the workforce in particular sectors.
The introduction of IR35 has been a huge undertaking by public authorities and corporations to ensure compliance with the legislation, so the change announced today is a big deal. It is a shame that we don’t have the view of the OBR of the impact this could have on Income Tax and National Insurance Contributions: but the costing published today by the Treasury suggests it could cut tax receipts by £1.1 billion in 2023-24, rising to £2 billion by 2026-27.
The Energy profits levy – the existing windfall tax
Interestingly, although the Prime Minister has made it clear that additional windfall taxes were not going to be introduced on oil and gas companies, we need to remember that the Energy Profits Levy announced in May is still in place.
This is a 25% additional surcharge on the extraordinary profits that are being made by the oil and gas companies. When it was announced in May, it was expected that this could raise £5 billion this year, although there was a great deal of uncertainty about this.
Under current plans this levy will remain in place until December 2025, and on the basis of the costings published today, the Government has no plans to end it early. The policy is now forecast to raise £28 billion over the next 4 years (including this year). This is another area of costing that it would be particularly useful to get independent scrutiny from the OBR.
Summary: a gamble on growth with long odds
It is undeniably the case that the UK (and Scottish) economies have been characterised for the last 15 years by very weak growth. This has resulted in stagnation in household incomes and living standards, and constrained the growth of government revenues – with implications for investment in public services.
It makes sense therefore for the government to put the objective to raise economic growth at the centre of its strategy. But setting a 2.5% annual growth target, as the UK government has done, is much easier said than achieved.
The government’s decision to reverse the Health and Social Care Levy and cancel the planned Corporation Tax increases merely take policy back to where it has been in the recent past. It is a return to orthodoxy rather than a break from the norm, and in this sense it is difficult to see that it will make any difference to growth.
The substantial cuts to income tax do represent a bigger change to existing policy. But the hope that these will stimulate the economy is based more on blind faith than on any tangible evidence. There is no evidence internationally that countries with lower tax rates grow more quickly. Historically, UK growth rates were highest when tax rates were higher.
Whether today’s announcements unleash economic growth remains very much to be seen. Strikingly, what there was no mention of today was any plans for additional public sector investment. Despite the government’s rhetoric about reforming the ‘supply-side’ of the economy, there was little mention of the role that the skills and health of the population play in influencing the capacity of the economy to grow.
Whilst the government seems comfortable borrowing an additional £30bn or so a year to fund the tax cuts announced today, and is apparently relaxed about an over-growing burden of national debt, the path set out today will constrain the government’s room for manoeuvre on investment in public services in coming years.
At a time when parts of the public sector are struggling to deal with the legacy of the pandemic and other longstanding challenges, the implied prioritisation of tax cuts over public services investment will prove highly contentious, particularly given the regressivity of the cuts.
Households in the top 10% of the income distribution in Scotland will be better off by around £24 per week on average as a result of the cancellation of the Health and Social Care Levy, whereas those in the middle of the distribution will be only £4 per week.
The hope that the policies announced on Friday will boost growth and hence revenues despite cuts in tax rates is a big gamble with long odds.
