Last week the Government launched its mini budget outlining its Growth Plan and setting a target trend rate of 2.5%.
The timing is interesting given the Bank of England’s 0.5% increase in base rates the previous day to 2.25% – the highest rate for 14 years and at the time of writing the market have reacted negatively where the Bank of England are expected to increase these rates even further.
As they say a week is a long time in politics and whether the Chancellor will have to relook at his plans will have to me seen!!
However, the context of the ‘mini budget’ was to promote growth and assist in the ‘cost of living crisis’ outlining a price cap for energy bills for 2 years for domestic customers and 6-months for businesses.
The government has stated that it will also make significant interventions in the energy market to help reduce costs and improve resilience, over the longer term.
To drive higher growth, the government will help expand the supply side of the economy. The Growth Plan sets out action to unlock private investment across the whole of the UK, cut red tape to make it quicker to deliver the UK’s critical infrastructure, make work pay, and support people to get onto the property ladder – all very laudable, but will the Plan work?
We set out below extracts from the Growth Plan relevant to infrastructure, housing, planning and development:
Paragraph 1.5 states – the government is removing barriers to the flow of private capital – whether taxes or regulation, supporting skilled employment, accelerating infrastructure delivery, getting the housing market moving and cutting red tape for businesses
Responsible public finances
It is important to remember that – the UK has the second lowest gross debt as a proportion of GDP in the G7, although debt is currently high by historical standards as a result of [covid etc] (paragraph 1.11).
The gamble is that – the package will lead to additional borrowing, but by cushioning real incomes and protecting viable businesses it will support GDP growth in the near term, reducing the risk of the UK economy entering a deep and damaging recession which could weaken the fiscal position, by leading to elevated borrowing. This package in turn lays the foundations for long-run growth. Lowering inflation in the near term will reduce debt servicing costs, while boosting economic activity which will create an indirect fiscal benefit through higher tax receipts. (para 1.12).
Tackling energy prices
2.8 A new Energy Supply Taskforce will seek to negotiate long-term agreements with major gas producers. The government is also working with electricity generators to reform the outdated market structure where gas sets the price for all electricity – instead, the government will move to a system where electricity prices better reflect the UK’s home-grown, cheaper and low-carbon energy sources, which will bring down consumer bills. Successful action should smooth the price of wholesale gas and electricity and increase security of supply over time, reducing the likelihood of similar energy price crises in the future.
2.9 The £40 billion Energy Markets Financing Scheme, delivered with the Bank of England, will help to address extraordinary liquidity requirements faced by energy firms from high and volatile energy prices….The scheme will provide liquidity to firms through a 100% guarantee, delivered via commercial banks and will open to applications from 17 October.
2.10 To increase energy resilience, the North Sea Transition Authority will shortly launch a new oil and gas licensing round. ….The government has also announced an end to the pause on extracting reserves of shale [fracking]. The government is driving the development of home-grown nuclear – including Small Modular Reactors – hydrogen, Carbon Capture, Utilisation and Storage and renewable technologies. The government will unlock the potential of onshore wind by bringing consenting in line with other infrastructure. The UK is a world-leader in offshore wind, with 8GW of offshore wind currently under construction. By 2023 the government is set to increase renewables capacity by 15%, supporting the UK’s commitment to reach net zero emissions by 2050.
2.11 The government will bring forward legislation to implement new obligations on energy suppliers to help hundreds of thousands of their customers take action to reduce their energy bills, delivering an average saving of around £200 a year. This help will be worth £1 billion over the next three years, starting from April 2023.
Growth: Investment Zones
The government has announced it will work with the devolved administrations and local partners to introduce Investment Zones.
Investment Zones aim to drive growth and unlock housing.
Areas with Investment Zones will benefit from tax incentives, planning liberalisation, and wider support for the local economy. The specific interventions in Investment Zones will include:
- Lower taxes – businesses in designated sites will benefit from time-limited tax incentives.
- Accelerated development – there will be designated development sites to deliver growth and housing. Where planning applications are already in flight, they will be streamlined and we will work with sites to understand what specific measures are needed to unlock growth, including disapplying legacy EU red tape where appropriate. Development sites may be co-located with, or separate to, tax sites, depending on what makes most sense for the local economy.
- Wider support for local growth – for example, through greater control over local growth funding for areas with appropriate governance. Subject to demonstrating readiness, Mayoral Combined Authorities hosting Investment Zones will receive a single local growth settlement in the next Spending Review period.
- Business rates – 100% relief from business rates on newly occupied business premises, and certain existing businesses where they expand in English Investment Zone tax sites. Councils hosting Investment Zones will receive 100% of the business rates growth in designated sites above an agreed baseline for 25 years.
- Enhanced Capital Allowance – 100% first year allowance for companies’ qualifying expenditure on plant and machinery assets for use in tax sites.
- Enhanced Structures and Buildings Allowance – accelerated relief to allow businesses to reduce their taxable profits by 20% of the cost of qualifying non-residential investment per year, relieving 100% of their cost of investment over five years.
- Employer National Insurance contributions relief – zero-rate Employer NICs on salaries of any new employee working in the tax site for at least 60% of their time, on earnings up to £50,270 per year, with Employer NICs being charged at the usual rate above this level.
- Stamp Duty Land Tax – a full SDLT relief for land and buildings bought for use or development for commercial purposes, and for purchases of land or buildings for new residential development.
Specified sites in England will benefit from a range of time-limited tax incentives over 10 years. The tax incentives under consideration are:
The Department for Levelling Up, Housing and Communities (DLUHC) will shortly set out more detail on the planning offer. This will include detail on the level of deregulation and the streamlined mechanism for securing planning permission.
The government will deliver Investment Zones in partnership with Upper Tier Local Authorities and Mayoral Combined Authorities in England, who will work in partnership with their relevant districts and/or constituent councils.
All Investment Zone agreements will contain tax and development sites. Areas will be responsible for putting forward sites and demonstrating their potential impact on economic growth, including by bringing more land forward and accelerating development.
Investment Zones will only be chosen following a rapid Expression of Interest process open to everyone, and after local consent is confirmed.
The government is in early discussions with 38 Mayoral Combined Authorities and Upper Tier Local Authorities who have already expressed an initial interest in having a clearly designated, specific site within their locality.
The government remains committed to the progress of the Freeports programme. The government will work with local partners involved in current and prospective Freeports to consider whether and how the Investment Zones offer can help to support their objectives, as part of the wider process for identifying Investment Zones. This will ensure that both programmes complement one another.
Growth: Getting the housing market moving
Paragraph 3.29 – From 23 September 2022, the government will increase the threshold above which Stamp Duty Land Tax (SDLT) must be paid on the purchase of residential properties in England and Northern Ireland from £125,000 to £250,000.
3.30 – From 23 September 2022, the threshold at which first-time buyers begin to pay residential SDLT will increase from £300,000 to £425,000 and the maximum value of a property on which first-time buyers relief can be claimed will also increase from £500,000 to £625,000.
3.31 – Later this autumn, the government will set out its vision to unlock homeownership for a new generation by building more homes in the places people want to live and work and by getting our housing market moving. The government’s full proposal will be set out in due course.
3.32 – The government will promote the disposal of surplus public sector land by allowing departments greater flexibility to reinvest the proceeds of land sales over multiple years – Will Homes England have the resources?
Growth: High quality infrastructure
3.36 – The Growth Plan announces that new legislation will be brought forward in the coming months to address [planning] barriers by reducing unnecessary burdens to speed up the delivery of much-needed infrastructure. This includes:
- reducing the burden of environmental assessments
- reducing bureaucracy in the consultation process
- reforming habitats and species regulations
- increasing flexibility to make changes to a DCO once it has been submitted.
3.40 – The Growth Plan also sets out the infrastructure projects that the government will prioritise for acceleration, across transport, energy and digital infrastructure.
Original article: Aspinall Verdi
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