Chancellor’s ‘mini-budget’ included sweeping cuts to taxes and regulations aimed at reversing construction slump
New chancellor Kwasi Kwarteng has pledged to “get out of the way to get Britain building” as he announced sweeping cuts to taxes and regulations designed to put a shot in the arm of the flagging construction industry.
The stamp duty threshold will be doubled from £125,000 to £250,000 and raised for first time buyers from £300,000 to £425,000 in a permanent cut effective from today as part of a package of measures announced this morning.
The ‘mini-budget’ was Kwarteng’s first major economic intervention since his appointment earlier this month and comes following yesterday’s warning by the Bank of England that the UK may have entered a recession.
The chancellor also provided more details on heavily trailed ‘investment zones’ which will be set up around the country to boost local economies.
Stamp duty will be abolished altogether on purchases of land and buildings for commercial or new residential development in the zones, which will also offer tax relief for structures and buildings and 100% tax relief on investments in plant and machinery.
Kwarteng confirmed the government is in “early discussions” with nearly 40 places on establishing the zones, including the Tees Valley, the West Midlands, Norfolk and the West of England.
He also unveiled plans to speed up the planning system for major infrastructure projects by bringing forward a bill within the coming months which will “unpick the complex patchwork of planning restrictions and European Union-derived laws which constrain our growth”.
“We will streamline a whole host of assessments, of appraisals, of consultations, endless duplications and regulations,” he said, adding: “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.”
He said the government will also increase the disposal of surplus government land to build new homes, although further details were not provided.
Other major interventions included slashing the basic rate of income tax by 1p to 19p from April 2023, abolishing the 45p tax rate for top earners over £150,000, scrapping a planned rise on corporation tax from 19% to 25% and reversing a 1.25% rise in National Insurance from 6 November.
A major package of support to help households and businesses with energy bills announced earlier this month will cost around £60bn over the six months from October, Kwarteng said, significantly less than the £150bn which had been widely expected.
He also announced a target to achieve annual economic growth of 2.5% by reforming the supply side of the economy, boosting investment and increasing incentives to innovate.
Yesterday the Bank of England forecast that the UK economy shrank by 0.1% in the third quarter of the year following a 0.1% contraction in the second quarter, which would mean that the UK has entered a recession.
The central bank also raised interest rates to 2.5% - the highest level in 14 years - in an effort to tame rampant inflation which is forecast to peak at 11% next month.
Total construction orders fell by 10.45% in the second quarter on the previous three months, the largest quarterly fall since the final quarter of 2020.
What the industry thinks
“The announcement on investment zones and cuts in stamp duty is to be welcomed. However, many of the planned tax cuts are merely a continuation of current policy or a reversion to where we were last year – the corporation tax rise they have reversed is not even in force yet, and National Insurance only rose in July. So how will more of the same bring about change and boost growth? Energy, materials, and labour are the main challenges for our sector, and as far as those operating in it are concerned this is a sticking plaster budget when the patient needed major surgery.
“We needed to see investment in retrofitting existing building as a long-term aim to save energy, more tax breaks for training, and a relaxation of immigration rules for specialist trades to help expand an industry that is approaching 250,000 vacancies. I appreciate that this was only a holding statement from a new government, but I don’t believe it will inject the confidence we need. ”
Richard Steer, chairman, Gleeds
“The Chancellor’s ‘mini’ budget was anything but. This was a radical fiscal event. The intention to stimulate growth and get the economy moving couldn’t be clearer and the sweep was wide – individuals, businesses and whole communities stand to benefit from personal tax reductions, corporation tax reductions & business incentives and the creation of the new investment zones.
“Whilst these measures, added to the recent announcement on energy cost support will be welcomed by individuals and businesses alike feeling the effects of the cost of living crisis, what are the longer term consequences?
“Investment zones are a promising initiative that offer real opportunity to accelerate investment and drive growth. Add in the suggested planning and regulatory reforms and these areas have the opportunity to be truly transformative – strong local leadership to capitalise on the opportunity will, however, be key.
“A reversal of the corporation tax rise will also be a helpful stimulant to business investment and job creation and stamp duty changes will certainly stimulate – or at least maintain – demand for housing; though does nothing for supply. Unless the investment zones pull this supply through, all the stamp duty change may do is shore up house prices in the face of rising interest rates and falling consumer confidence.
“All in all, the Chancellor has piled the chips on one spin of the roulette wheel. If the measures collectively work to unlock the economy and stimulate growth then the move will be lauded as bold and audacious; if the growth doesn’t come – and come soon and come quick – then all the Chancellor will have done is to trade a lot of long term pain for some fairly short term gain.”
Peter Hogg, UK cities director, Arcadis
“We await details of the new planning and tax zones but to truly succeed these must be public-private partnerships with a clear plan for creating sustainable communities as well as jobs, housing and infrastructure. We await the detail but today’s announcement on planning reforms in investment zones sounds promising, and if properly resourced in local authorities should deliver more investment in homes across the country in places that are bidding for investment zone status.”
Melanie Leech, chief executive, British Property Federation
“While we’re pleased to see the government commit to sweeping reforms of the planning system, accelerated measures that translate these proposals into much needed legislation will be vital. This isn’t the time for dither or delay.
“In areas like the Oxford-Cambridge Arc a lack of development is threatening to place a lid on the region’s huge potential. To free up our fastest growing towns and cities, like Oxford and Cambridge, the Government must consider development risks stunting their growth. That means reviewing the purpose of the Green Belt and championing opportunity areas for life sciences and technological advancement.”
Mike Derbyshire, head of planning, Bidwells
“Whilst we welcome today’s change, we would encourage the government to consider further steps to reduce the stamp duty burden by reducing the tax bands across all levels, and introducing a lower, flat rate of tax for all homes.”
Matthew Pratt, chief executive, Redrow
“Despite the increase in the first-time buyer stamp duty exemption level, the likely house price growth that it will fuel could ultimately hurt those aspiring purchasers more than it helps them. And this increased affordability pressure comes at a time when their main support product Help to Buy is coming to an end. The UK is facing an acute housing shortfall. The stamp duty reduction is unlikely to be the policy silver bullet to fix that.”
Nick Whitten, UK head of residential and living research, JLL