Bank of Scotland’s Business Barometer for October 2022 shows:
Business confidence in Scotland fell 10 points during the last month to 5%
Country’s businesses identify top growth opportunities as evolving their offering (33%), investing in their teams (29%) and entering new markets (27%)
Overall UK business confidence fell one point during the last month to 15%, with five out of 11 nations and regions reporting a higher reading than September
Business confidence in Scotland fell 10 points during October to 5%, according to the latest Business Barometer from Bank of Scotland Commercial Banking – conducted between 3rd-17th October.
Companies in Scotland reported lower confidence in their own business prospects month-on-month, down 11 points at 22%. When taken alongside their optimism in the economy, down 10 points to -14%, this gives a headline confidence reading of 5%.
Scottish businesses identified their top target areas for growth in the next six months as evolving their offering (33%), investing in their teams (29%) and entering new markets (27%).
The Business Barometer, which questions 1,200 businesses monthly, provides early signals about UK economic trends both regionally and nationwide.
A net balance of 16% of Scottish businesses expect to reduce staff levels over the next year, down two points on last month.
Overall UK business confidence fell one point during October to 15%, in line with the average over the last three months. Firms’ outlook on their future trading prospects was up two points to 27%, and a net balance of 21% are planning to create new jobs, up four points on last month. However, businesses optimism in the wider economy dropped three points to 2%.
Five UK regions and nations recorded a month-on-month increase in optimism in October. Of those, London (up 16 points to 49%), the North West (up 14 points to 28%) and Wales (up nine points to 5%) saw the largest monthly increases, with London remaining the most optimistic region overall.
Chris Lawrie, area director for Scotland at Bank of Scotland, said: “Ongoing economic challenges, not least the cost of doing business, is hitting firms and we’re seeing this reflected in a less optimistic outlook.
“As we approach the busiest trading period of the year for many, businesses across the country need to prioritise maintaining a steady cashflow to remain resilient and be well-equipped for any opportunities to grow.
“After all, Christmas can be a frenetic and expensive time for businesses and their customers, so firms need to have a plan in place to manage this, as well as having some money aside to cover unexpected costs.
“We’ll remain by the side of Scottish businesses to help them continue to navigate the challenging market conditions and push for growth.”
Business confidence in the manufacturing sector fell for the fifth month in a row, to 13%, down 1 percentage point, the lowest confidence level since February 2021.
Confidence in the retail sector declined by 6 percentage points to 9%, while confidence in the services sector also fell to 16%, both the lowest levels since early 2021.
However, the construction sector saw a 10 percentage point rise to 20%, although this level still remains weaker than in the first half of the year.
Paul Gordon, Managing Director for SME and Mid Corporates, Lloyds Bank Commercial Banking, said:“While confidence has marginally decreased this month, this also comes at a time of great economic uncertainty. The fact that it has only fallen by 1% suggests that businesses are showing resilience.
“As we head into the winter months and price pressures continue, energy price increases will start to bite and we are seeing continued pressure on pay expectations.
“Businesses need to keep a watchful eye on costs to ensure they are in the best possible position to face any future headwinds. For businesses that may be struggling, we encourage them to reach out to their networks for support. At Lloyds Bank we remain by the side of businesses to help navigate these challenging times.”
Hann-Ju Ho, senior economist for Lloyds Bank Commercial Banking, said: “While business confidence has marginally fallen this month, along with a drop in forward looking economic optimism, it is encouraging to see businesses still looking to increase their headcounts.
“However, cost pressures remain evident as businesses raise prices to protect their margins and wage pressure continue to be impactful. Given the recent turbulence in financial markets, it will be interesting to see how this will affect business confidence.”
A new report by Westminster’sinfluential Business, Energy and Industrial Strategy Committee has urged the Government to publish a draft Digital Markets Bill that would help deter predatory practices by big tech firms ‘without delay’.
Proposals for a Digital Markets Competition and Consumer Bill were trailed by the Government in the Queen’s Speech. It announced measures that would empower the Competition and Markets Authority’s (CMA) Digital Markets Unit (DMU) to rein in abusive tech giants by dropping the turnover threshold for immunity from financial penalties from £50 million to £20 million, and hiking potential maximum fines to 10% of global annual income.
The Committee concluded that fines have been viewed as ‘a small business cost’ by large companies, adding that there is ‘strong evidence of abuses of market dominance’ within digital markets. It warned that ‘consumers and others are at risk’ until a Bill is published and passed.
BEIS Committee Chair Darren Jones said: “The Competition, Consumer and Digital Markets Bill has wide support and should be prioritised, especially given the difficulty the Government currently has at passing other laws which are more controversial.
“There are many areas in the economy where stronger competition is required in the interests of consumers, small business and economic growth and this bill is an essential stepping stone to driving this issue forward.”
The report also called on the Government to ‘end [the] uncertainty’ caused by its failure to publish final guidance on the post-Brexit subsidy control regime, which the Committee found had left subsidy awarding bodies ‘in limbo’. The guidance needs to be published as soon as possible, MPs said.
Passed in April, and due to come into full force in early January, the Subsidy Control Act omits key details of the regime for public authorities to follow when awarding money. These gaps are due to be filled in by final guidance, which authorities will need if they are to have confidence when preparing bids for funding from the Shared Prosperity Fund. The Fund is a replacement for money formerly awarded through EU structural funding.
Mr Jones added: “The Government promised to replace previous EU funding into projects across the country as part of its Brexit and levelling up offers to the public. This has not yet been delivered and without full guidance and proper financing of the new subsidy schemes, funds that help deliver projects will be further delayed.
“The public will no doubt be disappointed to have not yet seen the so called ‘Brexit opportunities’ that were promised to level up their local community.”
Monday morning seems like an age ago, and the political circus is likely to continue into next week (writes Fraser of Allander Institute’s MAIRI SPOWAGE).
On Monday, the new chancellor undid pretty much every tax measure in the ex-Chancellor and soon-to-be ex-PM’s “mini”-budget. Only those already legislated for will proceed (the scrapping of the health and social care levy and the stamp duty cuts in England will still happen).
Although the PM has resigned, it still looks like the Fiscal Plan will be presented on 31st October, which is an interesting political situation given that presumably means that Jeremy Hunt will remain as Chancellor whoever wins the leadership election over the next week. But perhaps the last wee while has taught us that presuming anything is foolish!
For Scotland, the extra funding that was going to be generated by these tax measures for the Scottish Budget has now largely disappeared, with only the stamp duty reductions generating additional funding for Scotland.
This presents significant challenges for the Deputy First Minister in managing an already very stretched budget.
Economic Case for Independence published
Somewhat overshadowed by events at Westminster, the Scottish Government published the third in their series of papers to set out a new case for independence on Monday. This paper, “A stronger economy with independence” was expected to set out the economic case, covering issues such as currency, trade, and public sector finances.
We published analysis of the paper on Monday – and look out for our Guide to the Economics of Independence which we’ll be publishing soon and updating as more information is released by the Scottish Government.
Inflation goes back above 10%
The Office for National Statistics (ONS) published September inflation data, which showed that CPI inflation had gone back into double digits, running at 10.1%.
Underneath the headline rate, food and non-alcoholic beverages inflation is now estimated to be 13.1%. There was a slight downward pressure from motor fuels, as the prices at the pumps fall back from the peaks they reached in July.
These data still do not capture the energy price rises households are now experiencing as of 1st October, so expect there to be further increases in the rate when that data is published next month.
Interestingly (well, if you are interested in economic statistics, come on!) it may be that the change in the way the government is supporting households on energy may change the outlook for inflation. If, as is expected, the help after April is more targeted as cash transfers to those households most in need, then this will not put downward pressure on the actual price of energy.
We’ll be looking out for the OBR and Bank of England’s (3rd November) view on the pathway for inflation given these changes.
New Public Sector Finance Data published this morning (Friday)
ONS have also put out the latest public sector finances release, which contains public finance statistics (including deficit and debt) up to September 2022.
These have the first statistics on revenue generated by the Energy Profits Levy, which shows that £2.7 billion was generated from this tax in the year to date. It will be interesting to get the OBR’s independent view of the likely take from this tax over the next few years – and obviously to see if the Chancellor chooses to extend this in some way in the Fiscal Statement.
More broadly, it contains up-to-date statistics on the size of the UK National Debt. Debt has reached £2.5 trillion, which is equivalent to 98% of GDP – levels not seen since the 1960s.
This reminds us of the challenging fiscal environment, which sets the backdrop for the statement by the Chancellor in 10 days time.
No confirmation on the Scottish Government’s Emergency Budget Review
As we write this, we have no confirmation whether the Scottish Government’s Emergency Budget Review (EBR) will go ahead next week, as previously indicated.
Remember, this review is to look at in-year (2022-23) spending to balance the budget in the face of higher than expected (at the time of the last budget) inflationary pressures, particularly in relation to the public sector pay bill.
We wrote yesterday about employability support, one of the areas that John Swinney has already indicated will be cut. A number of questions remain to be answered. and we hope the EBR will be clear in laying out the evidence considered when deciding where the axe will fall.
The response to whatever is set out by the UK Chancellor on the 31st October will come in the Scottish Government’s draft budget for 2023-24 on the 15th December. For fiscal fans, the fun is due to continue for some months yet!
New research from insolvency and restructuring trade body R3 reveals Scottish firms had almost 1.7 million overdue invoices on their books in the last quarter.
R3’s analysis of data provided by Creditsafe shows 1,696,445 invoices were overdue in Scotland in Q3 – an increase of 7.1% from Q2’s total of 1,583,353.
Scotland and the West Midlands saw the biggest quarter-on-quarter rise in overdue invoices across the UK, followed by Northern Ireland (6.9% increase), the East Midlands (5.4%) and East Anglia (5.2%).
And Scottish businesses’ debt burden has been increasing steadily since the beginning of the year, rising from 552,897 unpaid bills in July, to 564,375 in August and 579,173 in September.
Almost 101,500 Scottish businesses reported that they had late payments on their books in Q3 2022 – a figure which peaked at 33,936 firms in September.
Richard Bathgate, Chair of insolvency and restructuring trade body R3 in Scotland, says: “This research highlights late payment is a growing issue in Scotland, and would suggest that businesses are facing ongoing cash-flow challenges, whether that’s supplier or client side …
“For small businesses that rely on regular income, even if just one client fails to pay or there is a delay in payment, that can have a serious effect – and in some cases, may mean they become financially distressed or insolvent.”
Richard, who is Restructuring Partner at Johnston Carmichael in Aberdeen continues: “I would urge the directors of any businesses who are worried about the impact of late payments or are worried about their ability to pay their invoices to seek professional advice.
“There are many steps that can be taken to support businesses, but they can only be taken if you move quickly and act early before the issue spirals.”
A major new survey of small and medium-sized businesses across the UK has shown a dramatic dip in confidence amidst rising inflation and wider economic turbulence.
The Be the Business Productive Business Index (PBI), now in its fifth edition, shows business owners and directors forecasting a negative shift in their prospects over the next three months due to the difficult economic environment.
The Productive Business Index, unique amongst UK business surveys, tracks changes in five key areas of business activity shown to impact on productivity. Management capability; Technology adoption; Training, Development and HR; Operating efficiency; and Innovation.
Key findings include:
The first-ever negative change in headline figure since the Index launched;
Two in five businesses are seeking efficiencies as a direct result of inflation;
Business leaders feel less confident that they have the management skills to handle the current economic situation, but are fighting back with plans to improve
Anthony Impey MBE, CEO of Be the Business, said: “These findings tell a stark story – following two years of unprecedented challenge, many businesses are struggling to cope with the latest turbulence in the UK economy.
“For the first time ever, our Productive Business Index shows a decrease in the optimism and outlooks of business leaders. Having been through the challenges of the pandemic and the ongoing supply chain and workforce issues, it highlights how heavily the economic situation is weighing on them.
“The headline figures are concerning, but it’s encouraging to see more leaders digging deep and looking for ways to improve themselves and their business to help navigate the next year. Business owners are tired, but they’re being forced to pedal harder in response to the difficult conditions they’re facing. It’s vitally important that they’re given all the support they need so that improving their business and boosting productivity is as easy as possible.”
The Be the Business’ Productive Business Index’s headline score, running from 0 to 200, decreased for the first time this quarter, from 121.1 to 115.6, indicating a fall in the productivity of firms.
In response to inflation, two-fifths (38%) of business leaders are planning to respond by finding efficiencies, one quarter (26%) will prioritise growth opportunities, and about one in six (15%) are considering reducing headcount to help their business survive.
Despite fighting through the previous two years of ups and downs, business outlook has fallen for the first time since Q4 2020, with half (50%) of leaders not confident in their business’ ability to respond to sustained inflation.
However, leaders are increasingly looking to improve their businesses and performance as they look to survive these new challenges.
Beneath the figures: Bruised UK firms are still looking to improve in the face of decreasing confidence
The consistent pressure on business leaders over the last several years – from the pandemic through to supply chain issues and now the escalating cost of living crisis – appears to have had a negative impact on them.
Business leaders feel less confident in their management skills as they look to navigate an increasingly challenging autumn and winter.
While belief in capabilities is down, business leaders continue to respond positively, by looking to bolster their skills as managers and invest time and money in their business over the next year:
Over half (56%) of UK business leaders believe their management teams have the right blend of skills, an 8% decrease from Q1 2022.
However, determination and the drive to improve shine through, with 45% expecting to spend more time on management and leadership activities – a 9% increase in only 6 months.
Just 54% of business leaders believe they have the skills and talent needed to succeed, a 10% decrease from Q1 2022
But 4 in 10 (40%) have plans to reassess pay, rewards and incentives to improve employee motivation, an increase of 8% on the last PBI.
There has been a significant drop (9%) in the number of business leaders that feel their company fosters innovation and new ideas from employees.
Yet, 41% of business leaders plan to develop new ideas, an increase of 7% compared to the beginning of the year.
The contrast between lower confidence and intent to improve is striking in the data on capabilities, and demonstrates the determination from business leaders to succeed in spite of the volatile economic context.
THIS week the government replaced one catastrophic plan with another (writes TUC’s GEOFF TILY). A new course to placate financial markets is traded off against likely massive hits to household budgets and fears about the future.
Support for energy bills was cut, public services already stretched beyond breaking point will be hit again, little was offered on soaring borrowing and mortgage costs, and nothing about already deeply inadequate benefits and universal credit falling further behind inflation.
There is another way to deliver an economy that works for working people, but the government couldn’t be further from it,
Dealing with failure
The Truss government were right about one thing, the economic policies of the past decade and more have been a disastrous failure. As Kwasi Kwarteng admitted, growth has been ‘anaemic’. In the ONS words: the UK is the only G7 economy yet to recover above its pre-coronavirus pandemic level in Quarter 4 2019. The UK has the lowest investment as a share of GDP (see our ‘companies for the people report’, Figure 7) In Spring OECD figures showed UK real wages would fall furthest of all G7 economies.
Mini budget catastrophe
But the mini budget was catastrophically wrongheaded. Truss and Kwarteng took the fundamental problem of an economy serving wealth not work and turned it into the solution. The flip side of support for energy bills, was lavish tax breaks for those least in need – under the spurious and long discredited fallacy of ‘trickle down’.
On top of this their intention was to borrow to fund this extreme project. They did so the day after the Bank of England had confirmed that they would be reducing support for government borrowing, and implementing a £80billon programme of ‘quantitative tightening’ [i.e. selling back government bonds to financial markets] from the start of October. (Regardless of anything else this revealed staggering lack of coordination on the part of both institutions – the excellent Daniella Gabor called this ‘uncoordinated class war on the British public’.)
Financial markets took fright and instead of buying started to dump government debt, but this was also intimately connected to a third factor. The complex financial strategies – so-called liability driven investments (LDI) – that pension funds have been deploying (unnoticed by most) for the past 20 years began to unravel in the face of these rate rises.
The Bank of England was obliged to step in to halt a vicious cycle – or doom loop – of bond sales leading to higher interest rates and so more bond sales. The spike in the chart below of interest rates on UK 30-year bonds shows how the episode was at least momentarily brought under control.
And in the meantime the government came under sustained assault for ‘fiscal irresponsibility’.
U-turn to a worse economy
After two U-turns (on the 45p top rate and corporation tax reductions), yesterday they U- turned on pretty much the whole thing.
But reversing a wrong doesn’t make a right, far from it.
We are now on the brink of a deep and damaging recession that threatens millions of jobs. But the latest Conservative chancellor has now announced the same basic approach that got us into this mess.
He warned of “more difficult decisions” on tax and spending to come. And immediately that “Some areas of spending will need to be cut”.
The Chancellor not only announced austerity. He not only sought once more – as did his George Osborne – to make a political virtue about imposing misery. He even invited George Osborne’s favourite adviser Rupert Harrison (now at Blackrock, one of three key institutions in LDI strategies) back to the Treasury to head a new panel of ‘economic advisers’ to deliver this reborn monstrosity.
Yesterday morning Rupert gave his City-oriented perspective on austerity
But this is a seriously misleading statement. The Osborne government did not repair the public finances. Over 2010-2019 the public debt ratio increased by 22 percentage point of GDP – the worse performance over a decade of economic recovery for a century (here).
For workers, this meant the worst pay crisis for 200 years. As Frances O’Grady spells out today, now expected (and this was before yesterday) to last at least two decades.
But the context for policy today is even more worrying than in 2010. Central banks, led by the Federal Reserve in the United States, are engaged in a forceful (their word) tightening of monetary policy.
This amounts to ending a strategy that has been in place since the start of the global financial crisis. In the wake of the last increase to 3.0 to 3.25 per cent, a Fed committee member has pointed to rates at up to 4.5 to 5 per cent. Fear of the impact of these rate rises on mortgage rates is likely common to all countries – for example in the US rates on a 30-year mortgage are up from 2.7 per cent at the start of 2021 to 6.9 per cent now.
And while in the UK the spike was brought under control, government interest rates are still seriously elevated and will carry on feeding through to mortgages.
In the UK money expert Martin Lewis has offered a grim rule of thumb: “For each 1 percentage point your mortgage rate increases, expect to pay roughly £50 more a month (£600/year) per £100,000 of mortgage debt.” The Resolution Foundation reckoned five million families would see annual payments rising by an average of £5,000 between now and the end of 2024.
Standing further back, the Financial Stability Board (Dietrich Domanski on the Today programme, 6 Oct.) have warned of the challenges of raising interest rates to deal with inflation under the conditions of the high global indebtedness that prevail today.
Likewise the IMF last week warned of “hidden leverage”, “waves of deleveraging”, and in particular the risk to ‘non-bank financial institutions’ – the latter including pension funds.
In terms of countries, first in the firing line are emerging market economies – with 20 countries “in default or trading at distressed levels”.
While the immediate trigger for central bank policies is the inflation set in motion by the end of lockdowns and Putin’s brutal invasion of Ukraine, the scale of the dislocation reflects a wider failure to set the economy right since the global financial crisis of 2008-09 exposed deep underlying failings. Summing up, the IMF offered the chilling: “the level of risk we are flagging at the moment is the highest outside acute crisis”
As the Biden administration has argued, for 40 years the interests of wealth have been prioritised over those of workers. The economy crashed in the first place because these financial interests proved wildly at odds with the interests of the population as a whole. An economy of speculation and debt crowded out production and decent pay and work.
The chancellor’s new advisory panel puts these interests back front and centre of policymaking at the Treasury. The other members so far announced are also from the City of London, not least securing J.P. Morgan a seat at the table.
Yesterday the Financial Times reported that the Bank of England’s programme of quantitative tighten has been put on hold, likely to protect the casino capitalism around pension funds.
Ahead of the mini budget the TUC issued a plan for a budget ‘on the side of working people’. We desperately need a government that will put first our interests not those of wealth. But instead once more the interests of the city of London are put ahead of those of workers and the country.
A new single rate for the national minimum wage to reflect the increased cost of living, and more effective employment law to protect workers’ rights underpin plans to build a fairer labour market in an independent Scotland, according to Deputy First Minister John Swinney.
Following publication of the paper Building a New Scotland: A stronger economy with independence, Mr Swinney said the powers of independence would allow the Scottish Government to build a fairer, more equal future for all workers. This includes new measures to improve access to flexible working and better industrial relations.
Deputy First Minister John Swinney said: “Improving job security, wages and work-life balance are essential to delivering a more socially just Scotland. The UK labour market model has generated high income inequality while failing to drive productivity growth.
“Compared to independent European countries similar to Scotland, the UK has a higher prevalence of low pay, a bigger gender pay gap, longer working hours and significantly lower statutory sick pay.
“The Scottish Government is committed to Fair Work, but we could go much further to strengthen that agenda in an independent Scotland, developing a legal framework that more effectively addresses the workplace challenges of the 21st century. It would give us an opportunity to redesign the system to better meet the needs of Scotland’s workers and employers.”
Specific measures proposed in the paper include:
establishing a Scottish Fair Pay Commission to lead a new approach to setting a national minimum wage, working with employers, trade unions and government
improving pay and conditions with a single rate minimum wage for all age groups and better access to flexible work to help parents and carers
repealing the UK Trade Union Act 2016 as part of developing an approach to industrial relations which suits both workers and employers
introducing a law to help workers organise co-operative buyouts or rescues when a business is up for sale or under threat
legislating to support workers in precarious employment, and banning the practice of staff being made redundant and re-hired on reduced wages and conditions
increasing transparency in pay reporting and data to address gender, ethnicity and disability pay gaps and building on Scottish Government work to break down barriers to employment
The paper outlines how it would be easier for an independent Scotland to deal with labour market shocks.
In responding to the global financial crisis and pandemic, other countries were able to quickly draw on existing institutions and initiatives. This could include a permanent short-time working scheme, modelled on the German Kurzarbeit programme which provides compensation for private sector workers whose hours are reduced because of economic difficulty. A scheme like this in Scotland could help retain skills, reduce long-term unemployment and the associated costs and allow for more rapid economic recovery.
Job Security Councils, modelled on a Swedish initiative, could provide support to workers who have lost – or are at risk of losing – their jobs. These non-profit foundations led by social partners, employer representative bodies and trades unions, would help workers find new employment by providing a range of advice and high-quality retraining.
The Chancellor will make a statement at 11am, bringing forward measures from the Medium-Term Fiscal Plan that will support fiscal sustainability.
He will also make a statement in the House of Commons this afternoon.
This follows the Prime Minister’s statement on Friday, and further conversations between the Prime Minister and the Chancellor over the weekend, to ensure sustainable public finances underpin economic growth.
The Chancellor will then deliver the full Medium-Term Fiscal Plan to be published alongside a forecast from the independent Office for Budget Responsibility on 31 October.
The Chancellor met with the Governor of the Bank of England and the Head of the Debt Management Office last night to brief them on these plans.
That racket you hear is those infamous Mini-Budget economic plans being put through the shredder – Ed. …
UPDATE: The Chancellor of The Exchequer Jeremy Hunt has today, Monday 17 October, brought forward a number of measures from 31 October’s Medium-Term Fiscal Plan:
Changes designed to ensure the UK’s economic stability and provide confidence in the government’s commitment to fiscal discipline
Basic rate of income tax to remain at 20% until economic conditions allow for it to be cut, IR35 and dividend tax rate reforms no longer going ahead
Treasury-led review of energy support after April 2023 launched
Following conversations with the Prime Minister, the Chancellor has taken these decisions to ensure the UK’s economic stability and to provide confidence in the government’s commitment to fiscal discipline.
The Chancellor made clear in his statement that the UK’s public finances must be on a sustainable path into the medium term.
Today’s announcement represents another down payment following the reversal of the corporation tax cut announced on Friday 14 October by the Prime Minister. The Chancellor will publish the government’s fiscal rules alongside an OBR forecast, and further measures, on 31 October.
In his statement the Chancellor announced a reversal of almost all of the tax measures set out in the Growth Plan that have not been legislated for in parliament.
The following tax policies will no longer be taken forward:
Cutting the basic rate of income tax to 19% from April 2023. While the government aims to proceed with the cut in due course, this will only take place when economic conditions allow for it and a change is affordable. The basic rate of income tax will therefore remain at 20% indefinitely. This is worth around £6 billion a year.
Cutting dividends tax by 1.25 percentage points from April 2023. The 1.25 percentage points increase, which took effect in April 2022, will now remain in place. This is valued at around £1 billion a year.
Repealing the 2017 and 2021 reforms to the off-payroll working rules (also known as IR35) from April 2023. The reforms will now remain in place. This will cut the cost of the government’s Growth Plan by around £2 billion a year.
Introducing a new VAT-free shopping scheme for non-UK visitors to Great Britain. Not proceeding with this scheme is worth around £2 billion a year.
Freezing alcohol duty rates from 1 February 2023 for a year. Not proceeding with the freeze is worth approximately £600 million a year. The next steps of the Alcohol Duty Review announced in Growth Plan 2022 will continue as planned. The alcohol duty uprating decision and interactions with the wider reforms to alcohol duties under the Alcohol Duty Review will be considered in due course.
This follows on from the previously announced decisions not to proceed with the Growth Plan proposals to remove the additional rate of income tax and to cancel the planned increase in the corporation tax rate.
Taken together, these changes are estimated to be worth around £32 billion a year.
The government’s reversal of the National Insurance increase and the Health and Social Care Levy, and the cuts to Stamp Duty Land Tax, will remain benefitting millions of people and businesses. The £1 million Annual Investment Allowance, the Seed Enterprise Investment Scheme and the Company Share Options Plan will also continue to further support business investment.
Energy bills support review
The government has announced unprecedented support within its Growth Plan to protect households and businesses from high energy prices. The Energy Price Guarantee and the Energy Bill Relief Scheme are supporting millions of households and businesses with rising energy costs, and the Chancellor made clear they will continue to do so from now until April next year.
However, looking beyond April, the Prime Minister and the Chancellor have agreed that it would be irresponsible for the government to continue exposing the public finances to unlimited volatility in international gas prices.
A Treasury-led review will therefore be launched to consider how to support households and businesses with energy bills after April 2023. The objective of the review is to design a new approach that will cost the taxpayer significantly less than planned whilst ensuring enough support for those in need. The Chancellor also said in his statement that any support for businesses will be targeted to those most affected, and that the new approach will better incentivise energy efficiency.
The government is prepared to act decisively and at scale to regain the country’s confidence and trust. The Chancellor stated in his speech that there will be more difficult decisions to take on both tax and spending. This means doing what is needed to lower debt in the medium term and to ensure that taxpayers’ money is well spent, putting public finances on a sustainable footing.
In light of this, government departments will be asked to find efficiencies within their budgets. The Chancellor is expected to announce further changes to fiscal policy on 31 October to put the public finances on a sustainable footing.
Further information
Table of total benefit of tax policy reversals:
Policy (£bn)
2022-23
2023-24
2024-25
2025-26
2026-27
Re-instate plans to raise Corporation Tax to 25% from April 2023
+2.3
+12.4
+16.6
+17.6
+18.7
Suspend 1p reduction in the basic rate of income tax
0
+5.3
+5.9
+5.8
+5.9
Maintain additional rate of income tax
+2.4
-0.6
+0.8
+2.2
+2.1
Maintain 1.25 percentage point increase in dividends tax rates
0
+1.4
-1.0
+1.1
+0.9
Maintain 2017 and 2021 reforms to off-payroll working rules (also known as IR35)
0
+1.1
+1.4
+1.7
+2.0
Cancel VAT-free shopping scheme for non-UK visitors to Great Britain
0
0
+1.3
+2.0
+2.1
Cancel one year freeze to alcohol duty rates
+0.1
+0.5
+0.6
+0.6
+0.6
Total
+4.7
+20.1
+25.4
+30.9
+32.3
Costings in the table are as set out in the Growth Plan 2022 – except for the 1p reduction in the basic rate of income tax, which is the costing from Spring Statement 2022 as adjusted in the Growth Plan 2022. Final costings will be set out as part of the Medium-Term Fiscal Plan on 31 October. Totals may not sum due to rounding.
THE CHANCELLOR’s STATEMENT:
A central responsibility for any Government is to do what is necessary for economic stability.
This is vital for businesses making long-term investment decisions and for families concerned about their jobs, their mortgages, and the cost of living.
No government can control markets, but every government can give certainty about the sustainability of public finances and that is one of the many factors influencing how markets behave.
And for that reason, although the Prime Minister and I are both committed to cutting corporation tax on Friday she listened to concerns about the mini budget and confirmed we will not proceed with the cut to Corporation Tax announced.
The government has today decided to make further changes to the mini budget.
And to reduce unhelpful speculation about what they are, we have decided to announce these ahead of the Medium-Term Fiscal Plan, which happens in two weeks.
I will give a detailed statement to Parliament and answer questions from Members of Parliament.
But because these decisions are market sensitive, I have agreed with the Speaker the need to give an early, brief summary of the changes which are all designed to provide confidence and stability.
Firstly, we will reverse almost all the tax measures announced in the Growth Plan three weeks ago that have not started Parliamentary legislation.
So whilst we will continue with the abolition of the Health and Social Care Levy and Stamp Duty changes we will no longer be proceeding with:
The cut to dividend tax rates.
The reversal of off-payroll working reforms introduced in 2017 and 2021.
The new VAT-free shopping scheme for non-UK visitors.
Or the freeze on alcohol duty rates.
Secondly, the government’s current plan is to cut the basic rate of income tax to 19% from April 2023.
But at a time when markets are rightly demanding commitment to sustainable public finances, it is not right to borrow to fund this tax cut.So I have decided that the basic rate of income tax will remain at 20% and it will do so indefinitely, until economic circumstances allow for it to be cut.
Taken together with the decision not to cut Corporation Tax, and restoring the top rate of income tax the measures I’ve announced today will raise, every year, around £32bn.
Finally, the biggest single expense in the Growth Plan was the Energy Price Guarantee.
This is a landmark policy supporting millions of people through a difficult winter and today I want to confirm that the support we are providing between now and April next year will not change.
But beyond that, the Prime Minister and I have agreed it would not be responsible to continue exposing public finances to unlimited volatility in international gas prices.So I am announcing today a Treasury-led review into how we support energy bills beyond April next year.
The objective is to design a new approach that will cost the taxpayer significantly less than planned whilst ensuring enough support for those in need.
Any support for businesses will be targeted to those most affected.
And the new approach will better incentivise energy efficiency.
The most important objective for our country right now is stability.
Governments cannot eliminate volatility in markets, but they can play their part, and we will do so because instability affects the prices of things in shops, the cost of mortgages, and the value of pensions.
There will be more difficult decisions to take on both tax and spending as we deliver our commitment to get debt falling as a share of the economy over the medium term.
All departments will need to redouble their efforts to find savings, and some areas of spending will need to be cut.
But, as I promised at the weekend our priority in making the difficult decisions that lie ahead will always be the most vulnerable.
And I remain extremely confident about the UK’s long term economic prospects as we deliver our mission to go for growth.
But growth requires confidence and stability, and the United Kingdom will always pay its way.
This Government will therefore make whatever tough decisions are necessary to do so.
REACTION:
Commenting on the Chancellor Jeremy Hunt’s fiscal statement today (Monday), TUC General Secretary Frances O’Grady said: “The Conservatives drove the UK economy over a cliff. Hunt slamming the gears into reverse now won’t help families and businesses already hit by soaring borrowing costs.
“People needed reassurances today. Instead, they got more uncertainty – about energy bills, about our public services, and about whether universal credit and benefits will rise with inflation.
“We are now on the brink of a deep and damaging recession that threatens millions of jobs. But the latest Conservative Chancellor still has the same basic approach that got us into this mess.
“The Chancellor should have announced a boost to universal credit and pensions, and a comprehensive plan to get wages rising faster for everyone. And he should have announced a much higher windfall tax on oil and gas giants.”
On the announcement of a review of support for families and businesses with energy costs beyond April 2023, she added: “Families and businesses now face months of worry. There is going to be less help with bills – but no-one knows who will lose out, by how much, or whether there will finally be a programme to fix Britain’s cold and draughty homes. This is not the reassurance working families need.”
Director of Policy & Communications at Independent Age, John Palmer, said: “Older people living on low and modest incomes were hoping to be reassured today, but frustratingly the Chancellor’s statement posed more questions than answers.
“Instead of ensuring stability, today only provided uncertainty. The review of the Energy Price Guarantee is extremely concerning. It’s no longer clear who will receive support beyond April 2023. Now millions of older people are wondering if they will be abandoned by the government and left with unaffordable energy bills and freezing homes next year.
“We know that many people in later life are already making dangerous cutbacks on heating and food. Our own polling revealed that 65% of older people plan to use less heating this winter.
“The government must ensure that its new targeted approach from next year helps older people in financial hardship, including the 850,000 older people who are currently entitled to Pension Credit but do not receive it.
“A fundamental, non-negotiable way to help older people’s incomes keep up with the price of essentials is for the government to uprate benefits and the State Pension with inflation. Today was another missed opportunity to offer this reassurance. Instead, millions of people over 65 will continue to live in fear that they will be made even poorer, when their budgets have been broken by the cost-of-living crisis.”
Will Hodson, consumer champion and founder of How To Save It commented:‘The Chancellor’s announcement that the Government will review the energy price cap in April is welcome. Supporting millionaires in paying their energy bills for two years was both morally and economically wrong.
“However, many households will be concerned about what this change means for them. The Government needs to make sure that their support is both good value to the taxpayer and provides sufficient, targeted support to those who really need it.’
CHANCELLOR Kwasi Kwarteng has been sacked, carrying the can for the ill-judged ‘mini-budget’ which has caused economic turmoil since it was announced three weeks ago today.
‘I’m going nowhere’ Kwarteng, Prime Minister Liz Truss’s choice as Chancellor, was recalled from an IMF meeting in Washington DC this morning to be told the news.
Prime Minister Liz Truss will desperately hope that the departure of close ally Kwarteng will appease the markets. She made the following brief statement confirming a humiliating U-turn this afternoon:
Good afternoon,
My conviction that this country needs to go for growth is rooted in my personal experience.
I know what it’s like to grow up somewhere that isn’t feeling the benefits of growth.
I saw what that meant and I am not prepared to accept that for our country.
I want a country where people can get good jobs, new businesses can set up and families can afford an even better life.
That’s why from day one I’ve been ambitious for growth.
Since the 2008 financial crisis, the potential of this great country has been held back by persistently weak growth.
I want to deliver a low tax, high wage, high growth economy.
It’s what I was elected by my party to do.
That mission remains.
People across this country rightly want stability.
That is why we acted to support businesses and households with their energy costs this winter.
It’s also the case that global economic conditions are worsening due to the continuation of Putin’s appalling war in Ukraine.
And on top of this, debt was amassed helping people through the Covid pandemic.
But it is clear that parts of our mini budget went further and faster than markets were expecting. So the way we are delivering our mission right now has to change.
We need to act now to reassure the markets of our fiscal discipline.
I have therefore decided to keep the increase in corporation tax that was planned by the previous government. This will raise £18 billion per year.
It will act as a down-payment on our full Medium-Term Fiscal Plan which will be accompanied by a forecast from the independent OBR.
We will do whatever is necessary to ensure debt is falling as a share of the economy in the medium term.
We will control the size of the state to ensure that taxpayers’ money is always well spent.
Our public sector will become more efficient to deliver world-class services for the British people.
And spending will grow less rapidly than previously planned.
I met the former Chancellor earlier today. I was incredibly sorry to lose him. He is a great friend and he shares my vision to set this country on the path to growth.
Today I have asked Jeremy Hunt to become the new Chancellor.
He is one of the most experienced and widely respected government ministers and parliamentarians.
And he shares my convictions and ambitions for our country.
He will deliver the Medium-Term Fiscal Plan at the end of this month.
He will see through the support we are providing to help families and businesses including our Energy Price Guarantee that’s protecting people from higher energy bills this winter.
And he will drive our mission to go for growth, including taking forward the supply side reforms that our country needs.
We owe it to the next generation to improve our economic performance to deliver higher wages, new jobs and better public services, and to ease the burden of debt.
I have acted decisively today because my priority is ensuring our country’s economic stability.
As Prime Minister, I will always act in the national interest.
This is always my first consideration.
I want to be honest, this is difficult. But we will get through this storm.
And we will deliver the strong and sustained growth that can transform the prosperity of our country for generations to come.
Kwarteng’s replacement – and the UK’s fourth Chancellor in a tumultuous 2022 – is none other than veteran former health secretary Jeremy Hunt.
Hunt supported Rishi Sunak – who’s predictions on the economy have been proved painfully accurate – in the recent Tory leadership election.
Hunt himself was an early casualty in the recent Tory leadership election and was also once voted as the most unpopular front-line politician of all time!
Clearly another popular choice … what could possibly go wrong?
HM Treasury issued the following statement this evening:
Government update on Corporation Tax
The Prime Minister has set out that the way the government is delivering on its mission to achieve a low tax, high wage, high growth economy is to change.
The legislated increase in the Corporation Tax rate from April 2023 will go ahead, with most small businesses benefitting from the new small profits rate.
Chancellor Jeremy Hunt will deliver the Medium-Term Fiscal Plan on 31 October, detailing action to get debt falling as a percentage of GDP over the medium term.
The government has today [Friday 14 October] announced that Corporation Tax will increase to 25% from April 2023 as already legislated for, raising around £18 billion a year and acting as a down payment on its full Medium-Term Fiscal Plan.
The decision has been taken in recognition of the need to ensure the UK’s economic stability and reassure markets of its commitment to fiscal discipline, after elements of September’s Growth Plan went further and faster than markets were expecting.
The Prime Minister has set out that the government is prepared to do whatever is necessary to ensure debt is falling as a share of the economy in the medium term and to ensure that taxpayers’ money is well spent, putting public finances on a sustainable footing.
The previously announced small profits rate of Corporation Tax will be maintained. Smaller or less profitable businesses will not pay the full 25% rate, and companies with less than £50,000 of profit – the large majority – will not see any increase at all, continuing to pay Corporation Tax at 19%.
The UK’s corporate tax regime will remain competitive and supportive of growth at the 25% rate, continuing to be the lowest rate in the G7. As part of the forthcoming tax review, the government will look at how the tax system can go further to promote growth and investment.
The government is committed to growing the economy and taking forward supply-side reforms that will ignite strong and sustained growth that delivers prosperity for the UK.
Chancellor of the Exchequer Jeremy Hunt will set out the government’s Medium-Term Fiscal Plan on 31 October, alongside a full forecast from the independent Office for Budget Responsibility.
Scotland’s economy is likely to contract in the second half of 2022, according to researchers at the Fraser of Allander Institute. The Institute’s quarterly Economic Commentary, which includes an assessment of all the key latest data on the UK and Scottish economies, was published last week.
In the Deloitte-sponsored Economic Commentary, the Strathclyde researchers have set out their new forecasts for the Scottish Economy.
The economists are forecasting growth of 3.6% in 2022, followed by a contraction of -0.6% in 2023, before returning to growth in 2024 of 0.8%. This is a significant revision down from the Institute’s previous set of forecasts in June.
The forecasts assume that the last two quarters of the year, and the first quarter of 2023, will show contractions in the economy due to wider economic challenges. This means that Scotland is likely to be entering into a recession (defined as two quarters of negative growth in the economy).
With inflation at a 40-year high, this quarter’s Commentary also includes extensive analysis of the likely impact of price rises on different types of households in the economy.
Professor Mairi Spowage, Director of the Institute, said “The data we analyse in the Commentary today points to weakening demand in the economy as inflationary pressures pervade every aspect of our lives.
“Consumer confidence is starting to weaken with attitudes on the outlook looking pessimistic. This has led us to reduce our forecasts for 2023 and 2024. Our assumption is that there will likely be contractions in the economy during the second half of 2022 and into 2023 given wider economic conditions.
“In practice, this means Scotland is likely to enter a recession.”
Angela Mitchell, senior partner for Deloitte in Scotland, said “There is no doubt that businesses in Scotland face significant challenges over the next few years. Many business leaders have never navigated their business, and its people, through a period of such high inflation and weakening economic activity.
“Charities and public bodies, unable to pass on costs or pivot plans like businesses, are also facing immense pressure. The dual blows of the pandemic and cost-of-living crisis are having a profound impact on the public sector’s spend power, while simultaneously driving huge demand for public services.
“Unlike during the pandemic, however, there is an opportunity to plan and prepare now for the months ahead. Business leaders will naturally want to focus on responding to the most immediate challenges, but they should also consider what they want their business to look like beyond the current challenges. Longer-term thinking, building in resilience and working towards creating an organisation that is fit for the future, will help businesses not only to recover, but to thrive.”
Also in the Commentary in this edition, the researchers have published an analysis of what the UK Government’s fiscal event on Friday 23rd September could mean for Scotland.
The Deputy First Minister has committed to setting out an emergency budget soon after the UK Government’s fiscal event. The announcements made by the UK Government on tax mean that there are resources available to the Scottish Government to either follow suit – or to invest the additional funding in services.
David Eiser, the institute’s Deputy Director, said “The UK Government’s “mini-budget” was anything but mini – the measures announced were very significant.
“The scale of fiscal changes – without any analysis of the sustainability of such measures – has created significant concern in the financial markets.
“The real surprises were on income tax, with significant changes announced for next financial year – albeit some subsequently reversed. Of course, these changes do not apply in Scotland, so it will be up to the Scottish Government to set out its proposed income tax policy for 2023/24 in due course.
“John Swinney has committed to producing an Emergency Budget in late October – although we should probably expect that the decision on income tax will not be set out until the Scottish Draft Budget is published. We now expect the UK Government to present their Medium Term Fiscal Plan and OBR forecasts also in late October, with the Scottish Budget likely to follow before the end of the year.”
