Today’s announcement by the Chancellor breaks with tradition, aims to take the brakes off growth but could crash the economy.
As we have come to expect with this Government, new policies are widely leaked ahead of their official reading to fellow MPs in the House of Commons. However, the fiscal policies that Kwasi Kwarteng announced today are already being seen as part of one of the most dramatic fiscal events of the last 30 years. Not really a ‘mini-budget’ but a maxi one. The new administration were even willing to break with the tradition of ensuring that the Office of Budget Responsibility forecast the likely cost and impact of their new policies, before bringing them to Parliament.
For the first time since the coalition government of 2010, we have clear ideological blue water between the left and the right. This administration clearly blames the current state of the economy, the “vicious cycle of stagnation”, and many of the problems facing the country on the lack of growth. But, Simon Clarke has already had the difficult task of trying to reconcile the ‘going for growth’ approach with his job title of Secretary of State for Levelling Up.
Impact for place managers and leaders
For place managers and leaders there was a lot to like in the ‘compassionate conservative’ agenda that was offered by the Boris Johnson's 'Levelling Up' brand. Supposedly designed for the so-called red wall seats, the focus on improved local services and places like high streets and town centres actually resonated more-widely. Focus groups with Conservative voters frequently cite their locale as the place where they want to see improvements. For members of the IPM it is the local that matters most.
Nevertheless, many businesses will welcome the u-turn on the 6% increase in Corporation Taxation with the news that the increase in NI is cancelled, especially given the hike in energy costs (even with support) and general inflationary pressures they are facing.
Consumers, who are getting more certainty with their energy bills and a bit more in their pay packets following the NI cut, may divert that money on spending - but as consumer confidence is at an all-time low this is no given. Also, as interest rates are going up, mortgages (and likely rents too) will be costing more and could easily wipe out any additional income that working consumers have.
The Chancellor is confident that his announcement of VAT free shopping for overseas visitors will help the high street. It will certainly help those businesses located in tourist destinations, especially London which attracts over half (53%) of all overseas tourists* - but will do little for the great majority of local business in town centres that serve a local or national catchment. Overseas visitor spend in retailers only accounts for a mere 1.25% of total retail spend**. Most retailers and other high street businesses will be left very disappointed by the lack of additional tangible support offered via VAT cuts or business rate relief.
Investment Zones - lessons from the 80s
Another headline announcement is new ‘Investment Zones’ to be established with significant business benefits, tax breaks and streamlined planning processes, to encourage investment and building. This will no doubt be attractive to companies, those starting up and others such as established developers looking to meet national housing targets. A concern here is not to repeat the mistakes of similarly-named Enterprise Zones in the 1980s, which served to suck in existing local businesses that also took the opportunity to rationalise their workforces in the process of moving.
Summary of key place-related measures
Other notable announcements and detail for IPM members include:
The Chancellor said that borrowing was appropriate to meet the costs of the energy crisis - referring back to the measures put in place to support the country through COVID. However, using borrowing to fund tax cuts is not an act of crisis - but one of ideology.
We have to wait for details and the oversight of the OBR until the end of the year. Until then this could be the non-budget that grows the economy out of recession and generates growth and government income to fund public services and level up. Or it could crash the economy – with the first reactions of markets causing the pound to fall.
The UK is in recession already, so perhaps this will be worth the gamble? For place managers, today’s announcements present not only an ideological shift, but they bring more change to local development, appearing to favour new entrants to high streets rather than existing businesses. One of the key challenges then will be to balance the complex needs of places and everyone in their local communities. If we forget to take care of the local, then a national dash for growth may end up benefitting a small minority.