Not all households are equally affected by rising prices. New ONS data for the UK released in August divides price indices, expenditure shares, and inflation by income quintile, retirement status, whether or not households have children, and residence type.
As many have anticipated, the households that earn the least are feeling the effects of rising prices most keenly, Chart 1.
Chart 1: Relative CPIH price indices by income quintile, 2005-2022
* Indices are differenced from the index for households in the third quintile (the reference group). Source: ONS
The first quintile (the lowest-earning 20% of households) faced an effective annual inflation rate of 9.8% in June, compared to 9.0% for the middle quintile and 7.9% for the highest.
Resolution Foundation’s forecast estimates that households in the lowest income decile will face inflation of 15% by October, while inflation will be 11% for those in the highest decile. The difference in price indices across the income distribution are not new, but they have spiked this year. From 2013 to early 2022, the price index for the first quintile was about 2 points higher than for the third quintile. By June 2022, that difference had grown to 3.5 points.
In comparison, the cost-of-living crisis has impacted the highest earners least.
Household spending patterns drive different effective inflation rates across the income distribution. Food, fuel, and housing make up a larger proportion of spending for lower-income households than for higher-income households.
The largest contributors to rising inflation are housing and household services, transport, and food and (non-alcoholic) beverages. The share of expenditures on these categories falls as income increases, Chart 2.
Chart 2: Expenditure shares on selected categories by income quintile, Feb-Dec 2022
Source: ONS
This year, fuel, food, and transport comprised 64% of the expenditure of the lowest-earning quintile. The highest quintile spends 55% of expenditures on the same categories. Lower-income households are also more likely to use pre-payment meters, and cannot spread costs across the year. High energy prices are more likely to result in reduced consumption during the winter for these households.
How does inflation affect real incomes?
Price inflation erodes real disposable incomes. In August 2022, the Bank of England estimated that real post-tax incomes will fall by 1.5% in 2022 and by 2.25% in 2023. In a recent report, the Resolution Foundation concluded that rising inflation will wipe out twenty years of real earnings growth.
These effects are not evenly felt across the earnings distribution.
In addition to facing higher inflation, the lowest-earning households have seen a drop in year-on-year nominal earnings growth this year compared to higher-earning households. This slower wage growth will compound the effects of higher experienced inflation.
Cost-of-living for retired households and households with children
Household composition may also change how households experience changes in the cost of living, also due to differences in the composition of expenditures.
Retired households typically face higher inflation than non-retired households, Chart 3. The inflation rate for retired households has been about 0.4 percentage points (pp) higher than for non-retired households since March. This trend highlights concerns about pensioners rationing fuel this winter.
Chart 3: Inflation by household composition
Source: ONS
Unlike retirement status, whether or not a household has children does not materially change the inflation rate they face.
Cost-of-living for renters and homeowners
Housing costs contribute to rising inflation, but the rates faced differ by residency type, Chart 4.
Chart 4: Relative CPIH price indices by resident type
* Indices are differenced from the index for owner-occupier households (the reference group). CPIH indices include housing costs. Source: ONS
Similarly to price indices across the income distribution, the price index for social rented sector tenants has spiked in 2022 compared to private rented sector tenants and owner-occupiers.
In June 2022, inflation for social rented sector tenants was 11.2%, compared to 8.2% and 8.6% for other renters and owner-occupiers respectively.
The most likely driver of this difference in experienced inflation is food costs rather than housing; social rented sector tenants spend 16.3% of expenditures on food and non-alcoholic beverages. The same share is about 10% for other renters and owner-occupiers.
Subsidised renters spend a smaller share of their expenditures on housing, fuels, and transport, so these are not likely sources of the difference in inflation rates. Regardless, subsidised renters are likely to be relatively low-income, and concerns about reduced food and fuel consumption, particularly in winter, are still salient.
Rising rent and mortgage rates are also likely to exacerbate pressure on household budgets, particularly for new homeowners.
Do proposed policies to combat the cost of living address distributional inequalities?
Both the UK and Scottish governments have announced policies to tackle the cost-of-living crisis, but it remains to be seen if these policies will effectively target those most impacted by inflation.
The £2,500 price cap announced by the UK government in September is guaranteed for two years and applies to all households equally. A £400 discount on energy bills starting in October and the cancellation of green levies on fuel are also universal.
A £15 billion support package announced in May provides one-off payments of £650 to low-income households on certain types of benefits, £300 to pensioner households, and £150 to individuals on disability benefits.
Scottish Government has also recently announced policies that target the most vulnerable households. Initiatives include a rent freeze and a hold on increases to ScotRail fares. The rent freeze in particular may help some in the short-term, but is likely to reduce rental property supply and quality if not carefully implemented.
Some previously-planned policies, such as increasing the Scottish Child Payment from £20 to £25 per week, per child and extending the benefit to under-16s, will also help households with children to manage rising costs.
The full distributional effects of the the cost-of-living crisis and the UK and Scottish governments’ response remain to be seen.
More businesses to be categorised as small businesses, meaning less red tape
Move will potentially exempt tens of thousands of the UK’s growing businesses from relevant future regulations, saving them thousands of pounds
Start of a sweeping package of reforms to cut red tape for business and stimulate growth
Thousands of the UK’s fastest-growing businesses will be released from reporting requirements and other regulations in the future, as part of plans aimed at boosting productivity and supercharging growth, Prime Minister Liz Truss announced yesterday.
Currently, small businesses are presumed to be exempt from certain regulations. However, many medium sized businesses – those with between 50 and 249 employees – still report that they are spending over 22 staff days per month on average dealing with regulation, and over half of all businesses consider regulation to be a burden to their operation [source].
The Prime Minister has announced plans to widen these exemptions to businesses with fewer than 500 employees for future and reviewed regulations, meaning an additional 40,000 businesses will be freed from future bureaucracy and the accompanying paperwork that is expensive and burdensome for all but the largest firms.
The exemption will be applied in a proportionate way to ensure workers’ rights and other standards will be protected, while at the same time reducing the burden for growing businesses.
Regulatory exemptions are often granted for SMEs, which the EU defines at below 250 employees. However, we are free to take our own approach and exempt more businesses to those with under 500 employees. We will also be able to apply this to retained EU law currently under review, which we would not have been able to do without our exit from the EU.
The changed threshold will apply from today (Monday 3 October) to all new regulations under development as well as those under current and future review, including retained EU laws. The Government will also look at plans to consult in the future on potentially extending the threshold to businesses with 1000 employees, once the impact on the current extension is known.
This is the first step in a package of reforms to ensure UK business regulation works for the UK economy. The reforms will harness the freedoms the UK has since leaving the EU to remove bureaucratic and burdensome regulations on businesses, while streamlining and making it easier for them to comply with existing rules, ultimately saving them valuable time and money.
Deputy First Minister John Swinney and his counterparts from other devolved governments are seeking an urgent meeting with Chancellor of the Exchequer Kwasi Kwarteng to discuss immediate actions needed to reverse the damaging effects of the UK Government’s tax proposals.
Mr Swinney and the Finance Ministers from Wales and Northern Ireland are highlighting the profound impact of “the largest set of unfunded tax cuts for the rich in over 50 years” warning that it is “a huge gamble on public finances and the health of our economy”.
In a joint letter to Mr Kwarteng, they warn against being condemned to another decade of austerity and express deep concern over reports that UK Government departments will be asked to make spending cuts to balance the budget, which may have profound consequences for devolved budget settlements already eroded by inflation.
The Ministers also renew calls for the UK Government to provide targeted support for households and businesses, funded through a windfall tax on the energy sector. In addition, they call for Social Security benefits to be increased, and request additional resources for the devolved governments to protect public services and to fund public sector pay settlements.
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.
Lloyds Bank’s Business Barometer for September 2022 shows:
Business confidence in Scotland rose 10 points during September to 15%
Scottish firms identify top growth opportunities as investing in their teams (39%), evolving their offering (38%) and diversifying into new markets (34%)
Overall UK business confidence remained the same as last month at 16%, with only three out of 11 nations and regions reporting a higher reading than August
Business confidence in Scotland rose 10 points during September to 15%, ending three consecutive months of decline, according to the latest Business Barometer from the Bank of Scotland Commercial Banking – conducted between 1st-15th September, before the Chancellor’s economic announcement.
Companies in Scotland reported higher confidence in their own business prospects month-on-month, up 18 points at 33%. When taken alongside their optimism in the economy, up two points to -4%, this gives a headline confidence reading of 15%.
Scottish businesses identified their top target areas for growth in the next six months as investing in their teams (39%), evolving their offering (38%) and diversifying into new markets (34%).
The Business Barometer, which questions 1,200 businesses monthly, provides early signals about UK economic trends both regionally and nationwide.
A net balance of 18% of Scottish businesses expect to increase staff levels over the next year, up eight points on last month.
Overall UK business confidence stayed the same as in August during September at 16%. Despite the net balance of businesses planning to create new jobs increasing by one point to 17%, firms’ outlook on their future trading prospects dropped one point to 25%, and their optimism in the wider economy also fell by one point to 5%.
Three UK regions and nations recorded a month-on-month increase in optimism in September. Along with Scotland, London (up 12 points to 33%) and the South East (up 15 points to 15%) both reported higher confidence readings, with London now the most optimistic region overall. Only Wales (down five points to -4%) recorded a negative overall confidence reading in the last month.
Chris Lawrie, area director for Scotland at Bank of Scotland, said: “It’s encouraging to see business confidence in Scotland back on the rise, despite the myriad of economic headwinds the country’s firms continue to face.
“It’s also pleasing to see businesses here planning to invest in their people and continue to evolve the services they offer as they target new opportunities to grow. At this challenging time, companies must also keep a close eye on cash flow to help mitigate any major turbulence ahead and ensure they’re ready to capitalise on opportunities to scale up as they arise.”
Business confidence rose by two points in both the retail and service sectors (15% and 17% respectively), however both these figures are close to 12-month lows. Manufacturing and construction firms saw their lowest levels of business confidence this year, down two points in manufacturing to 14% and down 16 points to 10% in construction. This was driven by overall falling optimism in the economy.
Scotland only: Paul Gordon, Managing Director for SME and Mid Corporates, Lloyds Bank Commercial Banking, said: “Firms should take heart that nationally, business confidence has stabilised, while recognising that wage pressures may continue for some time.
“However, it is important to note that this data was collected ahead of the recent Fiscal Statement and the current market volatility, where the effect on confidence will be seen in next month’s data.
“Keeping a watchful eye on out-goings, especially energy bills as we head into the winter months, will ensure businesses are in the best possible position and right now businesses will be taking on board what the currency position means for their business models.
“While capital and cash flow management are undoubtedly vital during this time, we would encourage businesses to reach out to their networks for support if they find themselves struggling. At Lloyds we remain by the side of businesses to help deliver the support firms needs to navigate these challenging times.”
Hann-Ju Ho, senior economist for Lloyds Bank Commercial Banking, said:“It is encouraging to see business confidence stabilising after a three-month decline.
“Firms’ assessment of their own trading prospects also remained steady and continues to show some resilience during turbulent times. Yet, cost pressures remain, as more businesses look to raise prices to help protect their margins while wage pressures show little sign of abating at this stage.
“With the recent volatility in financial markets as well as the Government’s Growth Plan and energy cap announcements, it will be interesting to see how these measures affect business confidence.”
Lothian MSP, Miles Briggs, has spoken about the need to increase investment in public services across the South East of Scotland to meet growing demand – while at the same time his party is urging the Scottish Government to cut the highest rates of tax in line with England!
During a debate at Holyrood yesterday on Scotland’s Population – Meeting the Needs of our Communities, Economy and Public Services – the Conservative MSP said that “Edinburgh and the South East continues to be a resilient region and the only part of the Scottish economy which has seen continued economic growth.”
Mr Briggs went on to say that this should not “mask the huge pressures which are facing our public services.”
Scottish Government funding for NHS Lothian as well as Edinburgh City Council are at their “lowest level” according to Mr Briggs, while the region is projected to have a growing population, leading to greater demands on services.
Local authorities in Lothian have the fastest growing populations in Scotland.
Midlothian is predicted to have the fastest growing population in Scotland, 13.8%, East Lothian the second fastest at 7.2%, City of Edinburgh sixth fastest, 6.6% and West Lothian seventh fastest, 5.9%. These local authorities all have much faster predicted population growth than the Scottish average of 3.5%.
Lothian MSP Miles Briggs has previously campaigned for a change to the formula which determines funding for NHS Boards, saying that NHS Lothian has not been receiving their fair share over the last ten years.
Lothian MSP, Miles Briggs, said:“The financial sustainability of delivering public services is becoming more difficult to deliver here in Lothian and it is time for SNP-Green Ministers to recognise this.
“The fact that levels of homelessness and children living in temporary accommodation are at their highest anywhere in Scotland is a direct consequence of not being able to deliver on local housing outcomes.
“NHS Lothian is seeing an unprecedented demand on services and waiting times for treatments are unacceptably long.”
If only there was a magic money tree …
Meanwhile, the International Monetary Fund has rebuked the UK Tory Government’s reckless ‘growth plan’ …
The Chancellor today (Friday 23 September) unveiled his Growth Plan to release the huge potential in the British economy by tackling high energy costs and inflation and delivering higher productivity and wages.
Chancellor unveils new growth plan, tackling energy costs to bring down inflation, backing business and helping households.
Corporation tax rise cancelled, keeping it at 19% as government sets sights on 2.5% trend rate of growth.
Basic rate of income tax cut to 19% in April 2023 – one year earlier than planned – with 31 million people getting on average £170 more per year.
Stamp Duty cuts will help people on all levels of the property market and lift 200,000 homebuyers every year out of paying the tax altogether.
The plan set the ambitious target for 2.5% trend of growth, securing sustainable funding for public services and improving living standards for everyone.
The Chancellor of the Exchequer, Kwasi Kwarteng, said: “Economic growth isn’t some academic term with no connection to the real world. It means more jobs, higher pay and more money to fund public services, like schools and the NHS.
“This will not happen overnight but the tax cuts and reforms I’ve announced today – the biggest package in generations – send a clear signal that growth is our priority.
“Cuts to stamp duty will get the housing market moving and support first-time buyers to put down roots. New Investment Zones will bring business investment and release land for new homes in communities across the country. And we’re accelerating new road, rail and energy projects by removing restrictions that have slowed down progress for too long.
“We want businesses to invest in the UK, we want the brightest and the best to work here and we want better living standards for everyone.”
Scottish Secretary Alister Jack said: “The Chancellor has set out an ambitious package of measures which will cut taxes and drive growth right across the UK.
“A strong economy is the best way to tackle the cost of living challenges we are all facing due to Russia’s invasion of Ukraine.
“Our ‘Plan for Growth’ will support households and businesses in Scotland, while driving economic growth to deliver jobs, investment and prosperity.
“The UK Government is delivering for the people of Scotland when it really matters.”
Setting out the first steps towards growth, Kwasi Kwarteng revealed a package of major cuts to Stamp Duty Land Tax, with the changes expected to increase additional residential investment, boost spending on household goods and support the hundreds of thousands of jobs in the property industry from removals companies to decorators.
The nil rate band will be doubled from £125,000 to £250,000, meaning that 200,000 more people every year will be able to buy a home without paying any Stamp Duty at all. The standard buyer in England will save £2,5000, meaning a typical family moving into a semi-detached property will save £2,500 on stamp duty and £1,150 on energy bills – and if they have a combined income of £50,000 around an additional £560 on tax. This is around £4,200 in total.
And the Government is going even further to support first time buyers, who will now pay no stamp duty up to £425,000, and increasing the value of the property on which first time buyers can claim relief, from £500,000 to £625,000. This tax cut took effect from midnight today (Friday 23 Sept 2022). The Chancellor also announced that he will further support homebuyers by increasing the disposal of surplus government land to build new homes, increasing supply.
The Chancellor also set out plans to tackle to the biggest drag on growth – the high cost of energy driven by Vladimir Putin’s invasion of Ukraine, which has driven up inflation. To tackle this the government’s Energy Price Guarantee will save the typical household £1,000 a year on their energy bill with the Energy Bill Relief Scheme halving the cost of business energy bills, reducing peak inflation by about 5 percentage points.
Also revealed today were major tax reforms to allow businesses to keep more of their own money, encouraging investment, boosting productivity and creating jobs. New measures include cancelling the planned rise in corporation tax, keeping it the lowest in the G20 at 19%, and reversing the 1.25 percentage point rise in National Insurance contributions, a change which will save 920,000 businesses almost £10,000 on average next year.
The Chancellor also announced more relief for businesses by making the Annual Investment Allowance £1 million permanently, rather than letting it return to £200,000 in March 2023. This gives 100% tax relief to businesses on their plant and machinery investments up to the higher £1 million limit.
It was also confirmed that the government is in discussion with 38 local and mayoral combined authority areas in England including Tees Valley, South Yorkshire and West of England to set up Investment Zones in specific sites within their area.
Each Investment Zone will offer generous, targeted and time limited tax cuts for businesses and liberalised planning rules to release more land for housing and commercial development. These will be hubs for growth, encouraging investment in new shopping centres, restaurants, apartments and offices, and creating thriving new communities.
Revealing further tax reforms, Kwasi Kwarteng outlined sector specific support for pubs and hospitality, freezing alcohol duty for another year. Reforms to modernise alcohol duties will also be taken forward and the government will publish a consultation on these plans.
The new measures backing business come on top of the government’s Energy Bill Relief Scheme for businesses to cap costs per unit, which will protect them from soaring energy costs this winter by providing a discount on wholesale gas and electricity prices.
The Chancellor also reiterated the important principle of people keeping more of what they earn, incentivising work and enterprise. He announced a 1p cut to the basic rate of income tax one year earlier than planned.
From April 2023, the basic rate of income tax will be cut to 19% and will mean 31 million people will be better off by an average of £170 per year. Due to the combined impact of the reversal of the HSCL and the reduction of the Income Tax Basic Rate, someone working full time on the current National Living Wage will see a tax cut of over £100.
Alongside cutting the basic rate of income tax, the Chancellor also abolished the additional rate of tax, taking effect from April 2023. In its place will be a single higher rate of income tax of 40%. The policy removes the UK’s previous top rate tax, which was higher than countries like Norway, USA and Italy, and is designed to attract the best and the brightest to the UK workforce, helping businesses innovate and grow.
In a further move to grow the economy, the Chancellor announced plans to accelerate new roads, rail and energy infrastructure. In 2021 it took 65 per cent longer to get consent for major infrastructure projects than in 2012. New legislation will cut barriers and restrictions, making it quicker to plan and build new roads, speeding up the deployment of energy infrastructure like offshore wind farms and streamlining environmental assessments and regulations.
To further support businesses, the Chancellor announced new measures to unlock private investment. The Government will change regulations to increase investment by pension funds into UK assets, benefiting savers and boosting economic growth, and incentivising investment into Britain’s science and tech companies.
New measures were also announced to help people on low incomes secure more and better paid work. Universal Credit Claimants who earn less than the equivalent of 15 hours a week at National Living Wage will be required to meet regularly with their Work Coach and take active steps to increase their earnings or face having their benefits reduced.
This change is expected to bring an additional 120,000 people into the more intensive work search regime. Jobseekers over the age of 50 will also be given extra time with jobcentre work coaches, to help them return to the jobs market.
Rising economic inactivity in the over 50s is contributing to shortages in the jobs market, driving up inflation and limiting growth. Returning to pre-pandemic activity rates in the over 50s could boost the level of GDP by 0.5-1 percentage points.
The majority of announcements today are UK-wide, however the Scottish Government is expected to receive more than £600 million extra funding over the 2021 Spending Review period as a result of the changes to income tax and Stamp Duty Land Tax and the Welsh Government will receive around £70 million over the same period as a result of the change to Stamp Duty Land Tax.
The reversal of the Health and Social Care Levy will save 4.3 million people across Scotland, Wales and Northern Ireland more than £230 on average next year.
In the coming weeks, the Government will set out further details of plans to speed up digital infrastructure, reform business regulation, increase housing supply, improve our immigration system, make childcare cheaper, improve farming productivity and back our financial services.
The business community has welcomed the Chancellor’s announcement.
Martin McTague, National Chair of the Federation of Small Businesses said:“The Truss Government is off to a flying start. The Chancellor has delivered pro-small business measures today and has rightly recognised that removing taxes on jobs, investment and entrepreneurs is essential for our economy.
“Ministers need to be relentless in removing barriers to small business success – especially with the current headwinds. The Government has today signalled its determination to back small firms and we look forward to working with Ministers and departments to put in place measures to help small businesses grow and succeed.”
Amanda Tickel, Head of Tax and Trade Policy, Deloitte said:“This Budget will undoubtedly attract international attention.
“With the UK now retaining the lowest corporate profits tax rate in the G20, a maximum income tax rate of 40%, and extra incentives available in investment zones, the UK is on a stronger footing to compete for international investment.
Emma Jones CBE, Founder, Enterprise Nation said:“It’s bold, it’s agile and it’s speedy. Economists will be arguing for months to come, but small businesses will be waiting for the impact of this budget trickling down into their sales tonight.
“The new administration clearly set out its stall today and that it is firmly on the side of entrepreneurs and wealth creators. The tax cuts, both business and personal, will deliver confidence and unleash the entrepreneurial spirit that we know exists across the UK and to which the Chancellor referred so often.
“The UK’s small businesses have wanted growth acceleration but have had to be content with stagnation because of barriers to growth such as access to finance, business rates and employment complexity.
“The extension of EIS and SEIS and the pension charge cap reforms will be welcomed with open arms by the small business community, and we expect more start-ups to follow with an emphasis on supporting those who are 50+ to move from unemployment into self-employment. Thanks to the removal of IR35, many experienced individuals that left the employment market will now return.
“Our view for more than a decade has been that one of the most important things a government can do is to champion entrepreneurs and this morning’s statement and announcements most seriously deliver on that.”
Kate Nicholls, CEO of UKHospitality said: “The stated objectives of boosting growth and tackling inflation are a positive statement of intent to rightly put business at the heart of the Government’s agenda.
“We support the ambition for a globally competitive tax regime, to unleash entrepreneurship, growth and investment, and we look forward to working with the Chancellor to deliver that.
“Energy support and NIC measures will allow our businesses to better plan for a tough winter ahead. Today’s announcement included many positive measures that will bear fruit in due course, and we look forward to continuing to work closely with the Government on our immediate challenges.”
Tony Danker, CBI Director-General, said:“This is a turning point for our economy. Like Covid, the energy crisis has meant Government has had to spend massively to protect people and businesses. That means we have no choice but to go for growth to afford it.
“Today is day one of a new UK growth approach. We must now use this opportunity to make it count and bring growth to every corner of the UK. Fifteen years of anaemic growth cannot be repeated.
“Taking action to get Britain’s economy moving again by beginning construction on transport and green infrastructure projects shows immediate delivery. Planning reform is long overdue.
“A simpler, smarter approach to tax can pay dividends, and firms will be keen to make the most of the investment incentives on offer.
“It’s not perfect – it’s just the beginning – but there’s plenty business can work with. The Chancellor signalled more proposals to come this Autumn and these will be vital to sustain momentum on growth.”
Michelle Ovens CBE, Founder, Small Business Britain said:“The focus on entrepreneurship in today’s Growth Plan statement is good news for small businesses, and a hugely encouraging step towards supporting this key part of the economy in a tough financial climate.
“The energy plan already announced, cutting prices for small businesses and addressing some of the astronomical rises we have seen this summer, will give businesses some reassurance over the winter months, even if there are still questions over the long term plans.
“There is no doubt that rolling back national insurance rises, IR35 regulations and the planned corporation tax rise next year will be welcomed by small businesses and the business community more widely. In the medium to long term, this will support and encourage entrepreneurial growth, which is very welcome.
“However there remain serious challenges in the short term as entrepreneurs battle with rising costs across all areas of the business, not just in energy and tax. Finance, input prices, export and staffing all remain challenging and we continue to see businesses failing at a high rate with little to fall back on after a very difficult few years.
“More will need to be done at all levels of society and government to ensure the 5.6 million small businesses in the UK can weather this winter and make the most of the supportive policies announced today.
“The direction of travel is absolutely right for small businesses. This now needs to be delivered by us all.”
Nicolas Burquier, Managing Director of Pizza Hut Europe said:“It’s great to see Government has acknowledged and is acting on the significant pressures facing the UK hospitality sector as a result of the rise in global inflation.
“Combined with the recently announced support on energy bills, the tax changes and Investment Zones unveiled today, all will offer some respite for many hard-pressed restaurants and takeaway owners like our franchisees.
“We look forward to continuing to work with the Government to ensure that hospitality receives the sustained support it requires as the sector looks to recover from current setbacks.”
Dr Liz Cameron CBE, Director & Chief Executive, Scottish Chambers of Commerce said:“The Chancellor’s commitment to pro-growth and pro-enterprise policies will be eagerly welcomed by businesses. The specifics on reducing business costs, cutting red tape and boosting infrastructure development are exactly the levers the UK Government should be pulling to support economic growth.
“The plans for Investment Zones strike an ambitious tone but these plans must provide equitable benefits to the UK nations ensuring new economic activity is generated, not simply displaced from one location to another. Similarly, fixing the complex and burdensome planning system must be a joint priority for both the Scottish and UK Government if we are to attract investors.
“As we look ahead to the Scottish Government’s emergency budget, businesses and households now play the waiting game to see if the Scottish Government opts to take similar moves. With control of powers such as income tax and land & buildings transaction tax devolved to Scotland, the expectation will be for Scottish Government to deliver parity with the rest of the UK. Divergence between the nations risks dampening business and investor confidence.
“The string of policy announcements from the Chancellor signal a bold start. As firms continue to navigate unprecedented challenges in the economy, consistent collaboration and partnership will be essential between both governments and the business community if we are to move from survival to growth.”
Stephen Phipson, Chief Executive, Make UK said:“The Chancellor has clearly recognised that we are heading for very stormy waters in the face of eyewatering increases in energy and other costs, together with a difficult international environment.
“Industry will welcome today’s statement which, coming on the back of the support for energy, contains a number of positive measures to help shield viable companies from the worst impact of escalating costs and help protect jobs. The focus on prioritising growth with plans to speed up planning reforms, boost infrastructure and investment is especially welcome.
“However, this is the sixth growth plan in little over a decade which has seen ever increasing political uncertainty. This has resulted in zero certainty for business, the most important thing it needs. Government must try and reverse this process by working with industry to develop a long-term economic strategy together with a National Manufacturing Plan.
“At its heart must be a properly designed tax system and a certainty of policy that aims to transform the low level of business investment, develops the workforce of the future and equips people with the digital skills they will need in the new industries and technologies which are rapidly emerging.
“Given the tools and, the right economic environment, industry can help itself and, at the same time, help the Government meet its growth target. Now is the time to end to put in place the right building blocks for the long-term.”
Emma McClarkin, Chief Executive of the British Beer and Pub Association, said:“We welcome the steps taken by the Government in the Chancellor’s fiscal statement. The measures announced today will mean a boost of £500m for our sector, enabling growth following successive crises and allowing us to thrive in the future.
“Coupled with this week’s intervention on energy bills, these commitments will make a significant difference to our pubs and brewers at an acutely difficult time.
“The Chancellor’s plans show that the Government recognises how extreme the cost of doing business has become and the enormous investment our sector makes, not only in the economy, but to the social fabric of communities across the breadth of the UK and why it must be protected. We look forward to the continued reduction of taxation on the sector at the next Budget – the need for a reduced VAT rate for hospitality and business rates reliefs remain as strong as ever.
“We will continue to work with the Government to ensure that reforms to the draft beer duty rates are brought forward as soon as possible, meaning that our pubs and brewers can contribute to, and be at the heart of villages, towns and cities for many years to come.”
Shevaun Havilland, Director General of the British Chambers of Commerce said:“Businesses will welcome many of the measures announced today that should boost economic growth, relieve cost pressures and encourage investment.
“The announcement to reverse the increase to National Insurance Contributions (NIC) is a big win for the British Chambers of Commerce and the business community. This is much needed support for companies during these difficult times.
“Firms will also be glad to see the Annual Investment Allowance made permanent. It is a crucial tool which gives them the confidence to push ahead with investment, and will add greater certainty to their plans, now we know it is guaranteed to remain.
“Business wants to create the wealth that funds Government spending, and plans for Investment Zones, and steps to encourage new funding in our growth industries have the potential to do just that.
“Investment Zones could also finally deliver on the Government’s long-standing promise to level up, if the scheme is truly UK-wide. But lessons must be learned from the past, otherwise they can simply displace growth and investment from one area to another without creating new economic activity.
“This is a bold start, and we now await further detail on the further reforms the Treasury announced, to see if this will develop into a comprehensive long-term economic strategy.
“All eyes will also now turn to the forecasts by the Office of Budget Responsibility in the autumn for reassurance on public finances.”
TUC: ‘ROBIN HOOD IN REVERSE’
Union body attacks Liz Truss for holding down wages while lining bankers’ pockets – “The party of pay cuts strikes again.”
Fresh attack on right to strike is “designed to hold down pay”
Responding to today’s ‘mini budget’, which announced tax cuts for corporations and the wealthy, but no help to get wages rising in the current cost of living crisis, TUC General Secretary Frances O’Grady said: “This budget is Robin Hood in reverse.
“We should be rewarding work, not wealth. But at the first opportunity, Liz Truss is holding down wages and lining the pockets of big corporations and City bankers. The party of pay cuts strikes again.
“We need a very different plan in the full autumn budget to do right by workers. The Chancellor should boost the minimum wage, universal credit and pensions before winter sets in.
“He should fund pay rises in the public sector that keep up with prices. And ministers should extend collective pay bargaining rights across the economy so that whatever your job, you can negotiate a fair pay rise.”
On restrictions on the right to strike, she added:“Nobody takes the decision to strike lightly. But the right to strike to defend pay and conditions is a fundamental British freedom.
“And it’s the last line of defence against employers who refuse to negotiate fair pay. These new restrictions are unworkable, very likely illegal and designed to hold down pay across the economy.”
On support with energy costs and the government’s rejection of calls for a higher windfall tax, she added:“Ministers are letting oil and gas giants use Britain like a cash machine with no withdrawal limit.
“We need a much higher windfall tax on greedy energy companies to protect families from profiteering. That could fund free home improvements so that families don’t lose money by leaking heat from their homes.”
The TUC’s submission to the Treasury in advance of today’s mini budget called for the following actions:
Bring forward inflation proof increases in the minimum wage, universal credit and pensions to October to help families through the cost-of-living emergency.
Get the minimum wage on a path to £15 an hour as soon as possible.
Give public service staff a real-terms pay rise that at least matches the rising cost of living and begins to restore earnings lost over the last decade.
Strengthen and extend collective bargaining across the economy, including introducing fair pay agreements to set minimum pay across whole sectors.
Impose a larger windfall tax on oil and gas companies that that are profiteering from UK families.
Make sure everyone pays their fair share of taxes by going ahead with increases in corporate tax, and equalising capital gains tax rates with income tax as a first step to fair taxes on wealth.
Chancellor’s measures fail to target support
Deputy First Minister says statement is ‘cold comfort for many’
The Chancellor’s fiscal statement and package of announcements targets the most wealthy, shifting further pressure onto the shoulders of those on the lowest incomes, Deputy First Minister John Swinney has said.
Reacting to the statement, Mr Swinney expressed his disappointment that while many households across Scotland are already struggling to pay their bills and heat their homes, the measures offer tax cuts for corporations and bankers.
The Deputy First Minister said: “The Chancellor’s statement today will provide cold comfort to the millions of people across Scotland who have been looking for the UK Government to use its reserved powers to provide support for those that need it most. Instead we get tax cuts for the rich and little for those who need it most.
“We estimate that the increase in the price cap to £2,500 will force an estimated 150,000 more Scottish households into extreme fuel poverty. Instead of offering these people support, the Chancellor is threatening to cut their family budgets further, with a new regime of benefit sanctions.
“On Land and Buildings Transaction Tax and on Scottish income tax, the Scottish Government will set out its plans as part of the normal budget process. We will discuss the proposed investment zones with the UK Government but we are clear they have to be the right fit for Scotland.
“Because of inflation, the Scottish Government’s budget is worth £1.7 billion less than it was when we set it in December, yet the Chancellor has refused to provide a single additional penny for public services or increase public sector pay.
“We are doing everything within our power to support people, public services and the economy, but these efforts are under threat by a reckless UK Government beginning a new, and dangerous race to the bottom. With a fixed Budget and no scope to borrow for short term challenges, Scotland is at the mercy of UK decisions. This reinforces the urgent need for independence.”
Factsheets on each of the major measures can be found here:
The Growth Plan speech delivered by Chancellor Kwasi Kwarteng:
Mr Speaker,
Let me start directly with the issue most worrying the British people – the cost of energy.
People will have seen the horrors of Putin’s illegal invasion of Ukraine.
They will have heard reports that their already-expensive energy bills could reach as high as £6,500 next year.
Mr Speaker, we were never going to let this happen.
The Prime Minister has acted with great speed to announce one of the most significant interventions the British state has ever made.
People need to know that help is coming.
And help is indeed coming.
We are taking three steps to support families and businesses with the cost of energy.
Firstly, to help households, the Energy Price Guarantee will limit the unit price that consumers pay for electricity and gas.
This means that for the next two years, the typical annual household bill will be £2,500.
For a typical household, that is a saving of at least £1,000 a year, based on current prices.
We are continuing our existing plans to give all households £400 off bills this winter.
So taken together, Mr Speaker, we are cutting everyone’s energy bills by an expected £1,400 this year.
And millions of the most vulnerable households will receive additional payments, taking their total savings this year to £2,200.
Secondly, as well as helping people, we need to support the businesses who employ them.
The Energy Bill Relief Scheme will reduce wholesale gas and electricity prices for all UK businesses, charities, and the public sector like schools and hospitals.
This will provide a price guarantee equivalent to the one provided for households, for all businesses across the country.
Thirdly, energy prices are extremely volatile, erratically rising and falling every hour.
This creates real risks to energy firms who are otherwise viable businesses.
Those firms help supply the essential energy needed by households and businesses.
So to support the market, we are announcing the Energy Markets Financing Scheme.
Delivered with the Bank of England, this scheme will provide a 100% guarantee for commercial banks to offer emergency liquidity to energy traders.
Mr Speaker,
The consensus amongst independent forecasters is that the Government’s energy plan will reduce peak inflation by around 5 percentage points.
It will reduce the cost of servicing index-linked government debt and lower wider cost of living pressures.
And it will help millions of people and businesses right across the country with the cost of energy.
Let no one doubt: during the worst energy crisis in generations, this Government is on the side of the British people.
The Bank of England are taking further steps to control inflation, acting again only yesterday.
I can assure the House, this Government considers the Bank of England’s independence to be sacrosanct.
And we remain closely coordinated, with the Governor and myself speaking twice a week.
But Mr Speaker,
High energy costs are not the only challenge confronting this country.
Growth is not as high as it should be.
This has made it harder to pay for public services, requiring taxes to rise.
In turn, higher taxes on capital and labour have lowered returns on investment and work, reducing economic incentives and hampering growth still further.
This cycle has led to the tax burden being forecast to reach the highest levels since the late 1940s – before even Her Late Majesty acceded to the throne.
We are determined to break that cycle.
We need a new approach for a new era, focused on growth.
Our aim, over the medium term, is to reach a trend rate of growth of 2.5%.
And our plan is to expand the supply side of the economy through tax incentives and reform.
That is how we will deliver higher wages, greater opportunities, and crucially, fund public services, now and into the future.
That is how we will compete successfully with dynamic economies around the world.
That is how we will turn the vicious cycle of stagnation into a virtuous cycle of growth.
So as a Government, we will focus on growth – even where that means taking difficult decisions.
None of this is going to happen overnight. But today we are publishing our Growth Plan that sets out a new approach for this new era, built around three central priorities:
Reforming the supply-side of the economy.
Maintaining responsible approach to public finances
And cutting taxes to boost growth.
Mr Speaker,
The UK has the second-lowest debt to GDP ratio of any G7 country.
In due course, we will publish a Medium-Term Fiscal Plan, setting out our responsible fiscal approach more fully.
Including how we plan to reduce debt as a percentage of GDP over the medium term.
And the OBR will publish a full economic and fiscal forecast before the end of the year, with a second to follow in the new year.
Fiscal responsibility remains essential for economic confidence, and it is a path we remain committed to.
Today we are publishing costings of all the measures the Government has taken.
And those costings will be incorporated into the OBR’s forecast in the usual way.
The House should note that the estimated costs of our energy plans are particularly uncertain, given volatile energy prices.
But based on recent prices, the total cost of the energy package, for the six months from October, is expected to be around £60bn.
We expect the cost to come down as we negotiate new, long term energy contracts with suppliers.
And, in the context of a global energy crisis, it is entirely appropriate for the government to use our borrowing powers to fund temporary measures in order to support families and businesses.
That’s what we did during the Covid-19 pandemic.
A sizeable intervention was right then…and it is right now.
The heavy price of inaction would have been far greater than the cost of these schemes.
Mr Speaker,
We are at the beginning of a new era.
As we contemplate this new era, we recognise that there is huge potential in our country.
We have unbounded entrepreneurial drive.
We have highly skilled people.
We have immense global presence in sectors like finance, life sciences, technology, and clean energy.
But Mr Speaker, there are too many barriers for enterprise. We need a new approach to break them down. That means reforming the supply side of our economy.
Over the coming weeks, my Cabinet colleagues will update the House on every aspect of our ambitious agenda.
Those updates will cover: the planning system, business regulations, childcare, immigration, agricultural productivity, and digital infrastructure.
And Mr Speaker, we start this work today.
An essential foundation of growth is infrastructure.
The roads, railways, and networks that carry people, goods, and information all over our country.
Today, our planning system for major infrastructure is too slow and fragmented.
The time it takes to get consent for nationally significant projects is getting slower, not quicker, while our international competitors forge ahead.
We have to end this.
We can announce that in the coming months, we will bring forward a new Bill to unpick the complex patchwork of planning restrictions and EU-derived laws that constrain our growth.
We will streamline a whole host of assessments, appraisals, consultations, endless duplications, and regulations.
We will also review the government’s business case process to speed up decision making.
And today, we are publishing a list of infrastructure projects that will be prioritised for acceleration, in sectors like transport, energy, and telecoms.
And, to increase housing supply and enable forthcoming planning reforms, we will also increase the disposal of surplus government land to build new homes.
Mr Speaker, we are getting out of the way to get Britain building.
Mr Speaker,
One of the proudest achievements of our government is that unemployment is at the lowest level for nearly fifty years.
But with more vacancies than unemployed people to fill them, we need to encourage people to join the labour market.
We will make work pay by reducing people’s benefits if they don’t fulfil their job search commitments.
We’ll provide extra support for unemployed over-50s.
And we’ll ask around 120,000 more people on Universal Credit to take active steps to seek more and better paid work, or face having their benefits reduced.
And, Mr Speaker,
At such a critical time for our economy, it is simply unacceptable that strike action is disrupting so many lives.
Other European countries have Minimum Service Levels to stop militant trade unions closing down transport networks during strikes.
So we will do the same.
And we will go further.
We will legislate to require unions to put pay offers to a member vote, to ensure strikes can only be called once negotiations have genuinely broken down.
Of course, Mr Speaker, to drive growth, we need new sources of capital investment.
To this end, I can announce that we will accelerate reforms to the pension charge cap so that it will no longer apply to well-designed performance fees.
This will unlock pension fund investment into UK assets and innovative, high growth businesses.
It will benefit savers and increase growth.
And, we will provide up to £500 million to support new innovative funds and attract billions of additional pounds into UK science and technology scale-ups.
And Mr Speaker, this brings me to the cap on bankers’ bonuses.
A strong UK economy has always depended on a strong financial services sector.
We need global banks to create jobs here, invest here, and pay taxes here in London, not Paris, not Frankfurt, not New York.
All the bonus cap did was to push up the basic salaries of bankers, or drive activity outside Europe.
It never capped total remuneration, so let’s not sit here and pretend otherwise.
So we’re going to get rid of it.
And to reaffirm the UK’s status as the world’s financial services centre, I will set out an ambitious package of regulatory reforms later in the Autumn.
But Mr Speaker,
To support growth right across the country, we need to go further, with targeted action in local areas.
So today, I can announce the creation of new investment zones.
We will liberalise planning rules in specified agreed sites, releasing land and accelerating development.
And we will cut taxes.
For businesses in designated tax sites, for ten years, there will be:
Accelerated tax reliefs for structures and buildings.
And 100% tax relief on qualifying investments in plant and machinery.
On purchases of land and buildings for commercial or new residential development, there will be no stamp duty to pay whatsoever.
On newly occupied business premises, there will be no business rates to pay whatsoever.
And if a business hires a new employee in the tax site, then on the first £50,000 they earn…
…the employer will pay no National Insurance whatsoever.
That is an unprecedented set of tax incentives for business to invest, to build, and to create jobs right across the country.
I can confirm for the House that we’re in early discussions with nearly 40 places like Tees Valley, the West Midlands, Norfolk and the West of England to establish Investment Zones.
And we’ll work with the devolved administrations and local partners to make sure Scotland, Wales and Northern Ireland will also benefit, if they are willing to do so.
If we really want to level up, Mr Speaker – we have to unleash the power of the private sector.
And now, Mr Speaker, we come to tax – central to solving the riddle of growth.
The tax system is not simply about raising revenue for public services, vitally important though that is. Tax determines the incentives across our whole economy.
And we believe that high taxes reduce incentives to work, they deter investment and they hinder enterprise.
As the Prime Minister has said, we will review the tax system to make it simpler, more dynamic, and fairer for families.
And we are taking that first step today.
Mr Speaker,
The interests of businesses are not separate from the interest of individuals and families.
In fact, it is businesses that employ most people in this country.
It is businesses that invest in the products and services we rely on.
Every additional tax on business is ultimately passed through to families through higher prices, lower pay, or lower returns on savings.
So I can therefore confirm that next year’s planned increase in Corporation Tax will be cancelled.
The UK’s corporate tax rate will not rise to 25% – it will remain at 19%.
We will have the lowest rate of Corporation Tax in the G20.
This will plough almost £19bn a year back into the economy.
That’s £19bn for businesses to reinvest, create jobs, raise wages, or pay the dividends that support our pensions.
I’ve already taken steps elsewhere in this statement to support financial services, so the Bank Surcharge will remain at 8%.
But, Mr Speaker, we will do more to encourage private investment.
The Annual Investment Allowance, which gives 100% tax relief on investments in plant and machinery, will not fall to £200,000 as planned…
It will remain at £1m.
And it will do so permanently.
Our duty is to make the UK one of the most competitive economies in the world – and we are delivering.
And Mr Speaker,
We want this country to be an entrepreneurial, share-owning democracy.
The Enterprise Investment Scheme. The Venture Capital Trusts. We will extend them beyond 2025.
The Seed Enterprise Investment Scheme. Company Share Option Plans. We will increase the limits to make them more generous.
Crucial steps on the road to making this a nation of entrepreneurs.
Mr Speaker,
For the tax system to favour growth, it needs to be much simpler.
I’m hugely grateful to the Office of Tax Simplification for everything they have achieved since 2010.
But instead of a single arms-length body which is separate from the Treasury and HMRC, we need to embed tax simplification into the heart of Government.
That is why I have decided to wind down the Office of Tax Simplification, and mandated every one of my tax officials to focus on simplifying our tax code.
To achieve a simpler system, I will start by removing unnecessary costs for business.
Firstly, we will automatically sunset EU regulations by December 2023, requiring departments to review, replace or repeal retained EU law.
This will reduce burdens on business, improve growth, and restore the primacy of UK legislation.
Mr Speaker, we can also simplify the IR35 rules – and we will.
In practice, reforms to off-payroll working have added unnecessary complexity and cost for many businesses.
So, as promised by My RHF the Prime Minister, we will repeal the 2017 and 2021 reforms.
Of course, we will continue to keep compliance closely under review.
Mr Speaker,
Britain welcomes millions of tourists every year, and I want our high streets and airports, our ports and our shopping centres, to feel the economic benefit.
So we have decided to introduce VAT-free shopping for overseas visitors.
We will replace the old paper-based system with a modern, digital one.
And this will be in place as soon as possible.
This is a priority for our great British retailers – so it is our priority, too.
Our drive to modernise also extends to alcohol duties.
I have listened to industry concerns about the ongoing reforms.
I will therefore introduce an 18-month transitional measure for wine duty.
I will also extend draught relief to cover smaller kegs of 20 litres and above, to help smaller breweries.
And, at this difficult time, we are not going to let alcohol duty rates rise in line with RPI.
So I can announce that the planned increases in the duty rates for beer, for cider, for wine, and for spirits will all be cancelled.
Now, Mr Speaker, we come to the question of personal taxation.
It is an important principle that people should keep more of the money they earn. And it is good policy to boost the incentives for work and enterprise.
Yesterday, we introduced a Bill that means the Health and Social Care Levy will not begin next year… it will be cancelled.
The increase in Employer National Insurance Contributions and dividends tax… will be cancelled.
And the interim increase in the National Insurance rate, brought in for this tax year…will be cancelled.
And this cut will take effect from the earliest possible moment, November 6th.
Reversing the Levy delivers a tax cut for 28 million people, worth, on average, £330 every year;
A tax cut for nearly a million businesses;
And I can confirm: the additional funding for the NHS and social care services will be maintained at the same level.
Mr Speaker,
I have another measure.
Today’s statement is about growth.
Home ownership is the most common route for people to own an asset, giving them a stake in the success of our economy and society.
So to support growth, increase confidence, and help families aspiring to own their own home, I can announce that we are cutting stamp duty.
In the current system, there is no stamp duty to pay on the first £125,000 of a property’s value.
We are doubling that – to £250,000.
First time buyers currently pay no stamp duty on the first £300,000.
We’re increasing that threshold as well, to £425,000.
And we’re going to increase the value of the property on which first time buyers can claim relief, from £500,000 to £625,000.
The steps we’ve taken today mean 200,000 more people will be taken out of paying stamp duty altogether.
This is a permanent cut to stamp duty, effective from today.
And Mr Speaker,
I have another measure.
High tax rates damage Britain’s competitiveness.
They reduce the incentive to work, invest, and start a business.
And the higher the tax, the more ways people seek to avoid them, or work elsewhere or simply work less…
…rather than putting their time and effort to more creative and productive ends.
Take the additional rate of income tax.
At 45%, it is currently higher than the headline top rate in G7 countries like the US and Italy.
And it is higher even than social democracies like Norway.
But I’m not going to cut the additional rate of tax today, Mr Speaker.
I’m going to abolish it altogether.
From April 2023, we will have a single higher rate of income tax of 40 per cent.
This will simplify the tax system and make Britain more competitive.
It will reward enterprise and work.
It will incentivise growth.
It will benefit the whole economy and whole country.
And, Mr Speaker, after all, this only returns us to the same top rate we had for 20 years.
And that’s not all.
I can announce today that we will cut the basic rate of income tax to 19p in April 2023 – one year early.
That means a tax cut for over 31 million people in just a few months’ time.
This means we will have one of the most competitive and pro-growth income tax systems in the world.
Mr Speaker,
For too long in this country, we have indulged in a fight over redistribution.
Now, we need to focus on growth, not just how we tax and spend.
We won’t apologise for managing the economy in a way that increases prosperity and living standards.
Our entire focus is on making Britain more globally competitive – not losing out to our competitors abroad.
The Prime Minister promised that this would be a tax-cutting government.
Today, we have cut stamp duty.
We have allowed businesses to keep more of their own money to invest, to innovate, and to grow.
We have cut income tax and national insurance for millions of workers.
And we are securing our place in a fiercely competitive global economy…
…with lower rates of corporation tax…
…and lower rates of personal tax.
We promised to prioritise growth.
We promised a new approach for a new era.
We promised, Mr Speaker, to release the enormous potential of this country.
Our Growth Plan has delivered all those promises and more.
Scotland’s inward investment and export growth plans
Strategies to attract foreign investment and open up international trade for Scottish companies have reported successful results.
Business Minister Ivan McKee told the Scottish Parliament that the export growth strategy, A Trading Nation, has delivered an additional £3 billion of planned international sales in its first three years.
Goods exports are growing more quickly than the UK as a whole and Scotland is also the only part of the UK with a positive trade balance in goods with the rest of the world, exporting £2.2 billion more than it imported in 2021.
A separate progress report on the Scottish Government’s Inward Investment Plan highlights that enterprise agencies attracted 113 inward investment projects and a total of 7,780 jobs in 2021-22, with 39 new investors choosing to locate here. The latest EY Annual Attractiveness Survey 2022 showed Scotland remains the most attractive part of the UK outside London for attracting foreign direct investment.
Ahead of his update to Parliament, Mr McKee visited the Tartan Blanket Co. in Edinburgh to hear how it was aiming to increase international sales.
The Business Minister said: “Despite unprecedented challenges for businesses and the economy, Scotland continues to punch above its weight on both exports and inward investment.
“A Trading Nation and our Inward Investment Plan have delivered important contributions to export growth and attracting inward investment to date. Delivery of these plans are key to Scotland’s National Strategy for Economic Transformation.
“The plans help build on Scotland’s strengths to win an ever-greater share of domestic and international market opportunities, support the development of Scottish supply chains, lay the foundations of a net zero industrial strategy, and attract and deploy significant domestic and private investment in Scotland.
“Scotland can take huge confidence – based on the progress reports and the growth of companies like The Tartan Blanket Co. – that our trade and investment strategies remain the right approach to growing exports and attracting inward investment in the years ahead.”
Neil Francis, Interim Managing Director of Scottish Development International (SDI), the international arm of Scottish Enterprise, said: “Global trade and investment is absolutely vital to Scotland’s economy and achieving the sustainable economic growth we all want to see.
“These progress reports underscore the strengths Scotland has on the international stage, both in terms of the attractiveness of our companies to global markets and as a location for companies to invest, locate and grow in.
“Our SDI colleagues based here and in target markets across the world will continue to bang the drum for Scotland, highlighting the incredible investment opportunities that exist here while supporting Scottish companies, such as The Tartan Blanket Co., export their world-class products and services overseas.”
The Chancellor is expected to announce reforms to the welfare system that will encourage thousands more into work and to boost their earnings, helping grow the economy.
Around 120,000 more benefit claimants will be asked to take active steps to seek more and better paid work, or face having their benefits reduced.
Over 50s to get more support to find work, boosting economic growth.
The Chancellor is this week expected to announce changes to Britain’s welfare system that will help boost people’s earnings, get them into work and support economic growth.
Changes to Universal Credit expected to be announced later this week will require benefit claimants working up to 15 hours a week at National Living Wage to meet regularly with their Work Coach and take active steps to increase their earnings or face having their benefits reduced.
This gradual expansion is an increase from the 12-hour threshold and will bring an additional 120,000 benefit claimants into the Intensive Work Search Regime.
With more than 1.2 million job vacancies across the UK, Work Coaches will set clear expectations with claimants and make sure they stick to their commitments. These commitments could include applying for jobs, attending interviews or increasing their hours. People who don’t fulfil their job-search commitments without good reason could have their benefits reduced in line with existing benefit sanctions policy.
Eligible claimants over 50 years old, including new claimants and the long-term unemployed, will also get extra support from Work Coaches. The newly unemployed will get 9 months of targeted sessions, and people who are long-term unemployed will receive a booster session followed by 3 months of intensive employment support.
Rising economic inactivity in the over 50s is contributing to shortages in the jobs market, driving up inflation and limiting growth. Returning to pre-pandemic activity rates in the over 50s could boost the level of GDP by up to 1 percentage point.
Chancellor Kwasi Kwarteng said: “Our jobs market is remarkably resilient, but it is not perfect. While unemployment is at is at its lowest rate for nearly fifty years, the high number of vacancies that still exist and inactivity in the labour market is limiting economic growth.
“We must get Britain working again. These gradual changes focus on getting people back into work and maximising the hours people take on to help grow the economy and raise living standards for all.
“It’s a win-win. It boosts incomes for families and helps businesses get the domestic workers they need, all while supporting economic growth.”
Secretary of State for Work and Pensions Chloe Smith MP said: “As we continue to face economic challenges and labour market shortages, we are committed to helping people on lower incomes to boost their pay – because we know work is one of the best ways to support your family and help grow our economy.
“Whether it’s increasing their hours in their current role, entering a new sector or switching careers, we want people of all ages and all stages to be able to progress into fulfilling careers.
“The expertise our dedicated DWP Work Coaches bring, will help to drive this change by removing barriers to progression and opening up opportunities for training and building skills, to increase earnings.”
These changes will be Great Britain-wide and, in line with usual practice, the UK Government will work with the Northern Ireland Civil Service to determine the most suitable way to deliver support in Northern Ireland in due course.
Certain groups will remain exempt from sanctions, including people who are unable to work due to long-term sickness or a disability.
