Mini-budget unveiled: going for growth
The new Chancellor, Kwasi Kwarteng's mini-budget resonated like a old-school 1980s style Conservative tax reduction and de-regulation plan, to solve our 1970s style stagflation risk. Good call. But will the markets buy it?
The aim of the mini-budget is to make the UK globally competitive and "unleash the country's potential" with a comprehensive growth plan. But it comes against the backdrop against great economic uncertainty. Will this pre-emptive dash for growth help resuscitate the economy, and will the books balance? We shall see. Whilst the steps taken are welcome and are a long-term positive, they come at a time of economic fragility. All the right policies, but at a difficult time. Markets may remain sceptical until any benefits emerge.
Key points of the growth plan are summarised below:
Energy: Two year price cap for retail: helps cap inflation (and therefore helps reduce interest payments on inflation linked bonds)
Going for growth: tax-cuts, breaking down regulatory barriers, reforming the supply side of the economy to stimulate demand
Infrastructure: road, rail, and digital infrastructure investment and acceleration of review and implementation by reviewing planning restrictions, regulations and bureaucracy.
New homes: get Britain building with streamlined planning and making government land available for housing
Employment: make work pay to stimulate work-seeking over benefit-taking
City and bonus cap: make London the centre for global banking and scrap bonus cap (which did not affect total remuneration)
Creation of new investment and tax relief zones: to accelerate development in 40 tax incentivised zones, as part of levelling up strategy.
Tax simplification: will be reviewed and made simpler and fairer to stimulate economic activity: planned increase in corporation tax rate will be cancelled and will remain at 19%, the lowest rate of corporate tax in the G20.
Tax-incentivised investment: will extent EIS, SEIS and VCT schemes to make Britain a country of entrepeneurs
Retail: bring back VAT-free shopping for tourists
Employer NI rate rises will be cancelled. Tax cut for 1m business and 28m workers whilst maintaining funding for NHS
Home ownership: stamp duty abolished for home purchases above £250,000
Income tax: basic rate cut earlier at 19%, higher tax rate of 45% abolished, highest rate now 40%, as it was for over 20 years.
We will be watching how Sterling reacts to this "fiscal event" - as any benefits may take time to feed through the system, and the funding of these plans has yet to be estimated or analysed.
insights inform solutions