Archive for: Political Services

At the Autumn Statement on Thursday, the Chancellor will set out tax rises and spending cuts totalling £60bn, roughly divided into £35bn of spending cuts and £25bn of tax rises.

Here is what you can expect:

Tax, Pensions and Benefits

Last week, the Chancellor and the Prime Minister met to plan this month’s Autumn Statement. It looks like they will bring ‘stealth’ increases in income tax and National Insurance by freezing the thresholds at which people start to pay different rates. It was already expected that the two thresholds would be frozen until 2026, but the new plan sees this being extended for two years or even longer.

While it was previously understood that Sunak and Mr Hunt have ruled out increasing the rates of income tax, National Insurance and VAT, as to do so would breach the Conservatives’ 2019 manifesto, there have been reports that they might increase the number of people paying the highest rate of income tax by lowering the threshold from £150,000. However, the Treasury has ruled out changes to higher-rate pension tax relief, over concerns it could disincentivise people to save and would hit middle earners.

Government officials said Jeremy Hunt was drawing up plans to extend a freeze in the inheritance tax ‘nil-rate band’ from 2025-26 to 2027-28. It is also understood that the pension lifetime allowance is set to be frozen for two more years, with a rise in line with prices delayed from 2025 to 2027. The approach comes with the future of the pensions triple lock, still hanging in the balance. Mr Hunt could decide that pensions should only rise in line with earnings rather than the current 10.1% inflation rate. Another big decision for Chancellor and the Prime Minister is whether to raise benefits in line with inflation. There have been reports that Rishi Sunak will bow to pressure, however, a Government source stressed no final decision had been made, so a real-terms cut could still happen.

It seems like Treasury officials are examining whether the Autumn Statement could include changes to non-dom status and moves to raise taxes on dividends by cutting tax-free allowances. Changes could include reducing the time period over which high net worth individuals can avoid tax on their worldwide income. The Chancellor could also cut the tax-free threshold for shareholders’ earning from dividends from the current level of £2,000. Jeremy Hunt has also been asked to consider changes to capital gains tax, which has the potential to bring in billions if it were changed to match income tax rates.

Moreover, it looks like No.10 and No.11 have returned to discussions about allowing local authorities to raise more in council tax by removing a requirement to hold a referendum if they are increasing it by more than 2.99 per cent. A Government source thought Sunak and Hunt would ultimately reject the plan, but said the fact that it was being discussed again made it more likely than before.

Capital Spending

All capital spending is under review, with a view to making billions in savings on infrastructure projects. No 10 denied reports that plans for the new Sizewell C nuclear power station could be scrapped, but big energy projects along with every other major infrastructure plan such as HS2 and Northern Powerhouse Rail will have costs reviewed. The biggest ticket item under threat appears to be the northern rail scheme, which was a manifesto promise in the 2019 election. Asked whether HS2 could also be subject to cuts, the Levelling Up Secretary Michael Gove said: ‘I am sure everything will be reviewed.’ This came as the head of the HS2 expressed confidence that that project would not face cuts.

Health

Having made repeated references to the need for ‘difficult decisions’, Prime Minister Rishi Sunak and his Chancellor are expected to announce at least £35 billion pounds in spending cuts.

However, with public support for the NHS so high – and the service already stretched to a breaking point – any significant cuts to the health service would likely prove unpopular. Sunak has said in Cabinet that health spending would not be cut and that he ‘would always support the NHS and that it would continue to be prioritised as difficult decisions are taken on spending’, however the NHS will be expected to ‘find efficiencies’. An important issue will be public sector pay, with speculation that that pay rises could be limited to 2% for 2023/24, despite inflation being over 10%. This would likely anger unions representing workers from across the NHS, who are threatening to walk out over below inflation pay deals. The specificities of pay deals will not be decided until next year, though the Autumn budget is likely to give a good indication of how much money the Department of Health and Social Care will have to work with.

Energy

Following former Prime Minister Liz Truss’s introduction of the Energy Bill Relief Scheme and news that the scheme will change following 31 March 2023, it is expected that further details of the Government’s plans will be announced in the Autumn Statement. The Chancellor has already explained that ‘any support for businesses will be targeted to those most affected and the new approach will better incentivise energy efficiency’.

There are renewed questions over whether the current windfall tax on oil and gas companies will be extended, whether that is increasing the temporary levy, the time frame and/or extending the tax to electricity suppliers. Mounting pressure comes from reports of more record-breaking oil and gas profits in the last few months.

International Development

The Government notified the International Development Committee at the start of the month that the FCDO’s temporary pause on non-essential ODA spending would be extended to 17 November. The question will be whether the suspension will be extended beyond the Autumn Statement, especially in light of future Foreign Office funding commitments made at COP27. The proportion of spending will only be restored from 0.5 to 0.7% once the Government is not borrowing for day-to-day spending and debt is falling.

Home Office

The UK Government had previously announced that the IR35 regime reforms were to be repealed from April next year. Chancellor Hunt announced in his statement on the 17 October that these repeals will no longer be going ahead, scrapping Kwarteng’s previous plans, meaning the current IR35 regime will stay. Staffing companies and end clients will continue to be liable for personal service company (PSC) contractor tax and, given HMRC’s likely refreshed focus on enforcement, should keep going with their procedures relating to determination of the IR35 tax status of PSCs. The UK seems likely to face a period of greater-than-expected economic uncertainty and this will put pressure on the revenues and profits of many involved in the use or supply of contingent workers, as well as potentially impacting the right to work checks for employees through the Identification Service Provider method to check passports of non-nationals. If the Government is serious about the status of this, Jeremy Hunt’s Autumn Statement will address this.

Science and Technology

In an attempt to demonstrate a return back to serious financial management of the economy and the tax system, it is rumored that the Government may overhaul Research and Development (R&D) reliefs. R&D reliefs are used to support companies that work on innovative projects in science and technology and can be claimed by those that seek to research or develop an area in their field. The rumored overhaul could therefore impact the UK’s position as a global science and technology superpower.

Education and Skills

The Prime Minister so far vowed to protect only one area of spending, the NHS, meaning education could face much deeper cuts. This is put into context by research by the Institute for Fiscal Studies showing the costs faced by schools are by more than economy-wide inflation.

However, in keeping with the Conservative Government’s focus on skills over the last few years, it has been reported Sunak is preparing a radical set of reforms to transform the nation’s education system, including a British baccalaureate and a network of technical institutes to transform vocational training. This approach contrasts his predecessor Truss, who neglected to address skills in her plan for growth, and follows a recent Education Committee session on the International Baccalaureate. This builds on his leadership campaign pledges over the summer, which included requiring all pupils to continue to study core subjects like English and Maths.

His campaign pledges for education also covered other areas of education; to build on the Early Career Framework and improve professional development, establishing a new headteacher shadowing programme and giving the DfE a ‘new mandate to explore how more digital technology could be used in schools, building on the Oak National Academy, to provide teaching resources, and use AI to reduce workload outside of teaching time’. However, given the pressures of this budget and the heavy investment on skills, it is unlikely other parts of the sector will experience the same focus as the 16-19 landscape.

Defence

The Defence Secretary has denied threatening to resign if the Chancellor didn’t maintain the commitment to spend 3% of GDP on defence by 2030. At a meeting of the Defence Committee meeting, Ben Wallace said he would instead be fighting for as much money as he could get for defence. He described the target as an ‘aspiration’ and would later complete the roll back on the target, saying he would like there to be a real terms investment in defence but conceded he would like the country to meet the 3% target at ‘some stage’, with acknowledgement that there is a new Prime Minister and new Cabinet.

DCMS

With a plethora of competing issues to contend with this year, the Budget is unlikely to deliver any big announcements for the Department for Digital, Culture, Media and Sport. A Whitehall source revealed earlier this month that ‘every department that tried to put bids in has been quite harshly rebuffed’ going on to specify: ‘If DCMS was asking about arts funding or whatever, that has been rebuffed’.

The sector has faced other funding woes of late; DCMS recently ordered Arts Council England to postpone its new three-year funding commitment to arts organisations, although it has since been announced that there will be £446m per annum available for ACE’s 2023-26 Investment Programme.

This follows the House of Commons Digital, Culture, Media and Sport Committee’s most recent report, which found that urgent financial support is needed for the sector as many organisations are facing an ‘existential threat’ from the cost-of-living crisis. The report touched on the Government’s levelling up agenda, a manifesto commitment, by suggesting the Government neesd to tackle geographical funding imbalances for arts and culture. However, links to the levelling up agenda have been drawn out in recent DCMS funding announcements, with Greater Manchester; the West of England and Cornwall and the Isles of Scilly; Norfolk, Suffolk and Cambridgeshire; Leicestershire, Derbyshire and Lincolnshire; Kent, Essex and East and West Sussex; and the North East of England all set to benefit from a new £17.5 million funding pot to help creative businesses expand their operations.

Whether indirectly or directly, arts organisations will need financial support if they are to survive the cost-of-living crisis this year, as many in the sector have pointed out.

Housing

With UK house prices falling at the sharpest rate in almost two years, the Government will be hoping the budget can stabilise the housing market. Many believe that the fate of market could determine the result of the next election.

Jeremy Hunt has reversed almost all the tax cuts set out in Kwasi Kwarteng’s mini-Budget. One of the only two elements that was retained was the cut to stamp duty in England and Northern Ireland. (Scotland and Wales have their own property purchase tax regimes). This means that the SDLT nil-rate band – the threshold below which Stamp Duty does not need to be paid – will be doubled from £125,000 to £250,000. First-time buyers, who currently do not pay SDLT on the first £300,000 on homes costing up to £500,000, will see the nil-rate band extended to £425,000 on homes costing up to £625,000.

During the summer leadership election, Sunak committed to tackling the problem of land banking, where housebuilders delay construction on sites earmarked for development in order to drive up property prices. He vowed to look at a new levy with the aim of boosting the number of new homes being built.

On retrofitting, the Climate Change Committee (CCC) and its Chairman Lord Deben wrote to Jeremy Hunt, stressing the need for urgent action on decarbonising buildings, through measures like loft and cavity insulation, and through a heat pump rollout. He wrote ‘The next two years should be a period for a concerted push to improve rates of loft and cavity wall insulation, draught-proofing and installing modern tools to manage energy use (such as smart thermostats, thermostatic radiator controls and smart meters)’.

Friends of the Earth head of policy Mike Childs said ‘Fixing the UK’s heat leaking homes will cut energy bills, help keep people warm, boost energy security and slash carbon emissions. The Chancellor must recognise this in next week’s Autumn Statement by committing to investing at least £5bn annually on insulation over the coming years.’

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Many shared their confusion online at the sight of a Liz Truss campaign bus driving around Westminster with a depiction of the new Prime Minister photoshopped onto a Union Jack, next to a plate of baked beans, with a promise of a “citizens’ assembly to fix climate & costs”. This unexpected environmental commitment was accompanied by a Government press release that would fool most people who stumbled across it. To many people’s disappointment, it emerged to be an elaborate stunt by activists. On the same day, Truss promised during PMQs to expand supply of North Sea oil and gas to tackle the energy crisis, fueling worries about the new Government’s intentions for handling the climate crisis.

Despite Truss’s reiteration of support for the Government’s 2050 net zero pledge, the International Energy Agency has said that net zero cannot be achieved unless there is a commitment to no new oil and gas, something expansion of North Sea oil and gas clearly conflicts with. Keir Starmer criticised the Prime Minister yesterday for refusing to introduce a windfall tax on oil and gas profits which she argued is not conducive to business. Truss has also committed to scrapping green levies on energy bills and green regulation, and committed to ending the UK-wide moratorium on fracking – a process which leaks methane into the atmosphere and causes air, water and sound pollution. Her strongest commitment to alternative energy has been on new nuclear, an option that is highly contested on environmental grounds.

Appointments to Truss’s new cabinet have caused more worry, with the promotion of Ranil Jayawardena to Secretary of State for Environment, Food and Rural Affairs, and Jacob Rees-Mogg to Secretary of State for Business, Energy and Industrial Strategy. GreenPeace have said Rees-Mogg should be the ‘last person’ in charge of the energy brief, with a history of climate denialism, support for fracking and desire to squeeze ‘every last drop’ of oil from the North Sea. Meanwhile, Jayawardena has publicly criticised the use of rural large-scale solar farms and has a voting record which consistently votes against measures to prevent climate change. The Conservative Party itself is split when it comes to net zero, with two rival groups emerging this year: the Net Zero Scrutiny Group and Net Zero Support Group. Chris Skidmore MP, founder of the Support Group, has launched a UK tour today in defence of green policies, and Alok Sharma has been reappointed COP26 president despite being regarded as relatively proactive on climate policy.

On top of internal disagreements, external pressure is inevitable, especially with COP27 in Egypt at the end of the year. There is likely to be further pressure from developing countries, particularly within the context of worsening global extreme weather (as seen with flooding in Pakistan) and the continued failure for western countries to commit £100bn of annual funding for mitigation and adaptation. Whatever Truss’s intended focus, it is clear that climate policy is a key topic within political discussion on the international stage, within UK politics and inside the Conservative party, which could make it increasingly hard for the new Prime Minister to ignore.

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As the Conservative leadership race heats up, with MPs from every side of the political divide making their allegiances and opinions known, here is an overview of candidates Rishi Sunak and Liz Truss on housing and the cost of living.

Rishi Sunak on the cost of living

Rishi Sunak has been accused of making a ‘screeching U-turn’ on tax cuts as he has vowed to scrap VAT on energy bills for a year if he becomes Prime Minister. Under his plan, the 5% rate on household energy would be scrapped for one year from October, if the price cap on bills rises above £3,000 for the typical household. Sunak said the ‘temporary and targeted’ measure would save average households £160 a year and would ensure people get ‘the support they need’, while also ‘bearing down on price pressures’.

Sunak had previously been resisting calls for immediate tax cuts, instead saying the nation needs ‘honesty and responsibility, not fairy tales’. He had pledged to service public debt and hold off on tax cuts until inflation is under control, presenting his position as ‘common-sense Thatcherism’. He has also committed to taking a ‘tough stance’ towards public sector pay and the need to avoid wage price spiral.

The former Chancellor has said he would continue increasing corporation tax from 19% to 25% next year, as well as creating incentives for businesses to invest through relaxing financial regulations and scrapping the Apprenticeship Levy.

Rishi Sunak on housing

Sunak has pledged to speed up building in cities and on brownfield sites and crack down on ‘landbanking’ by big developers. He has suggested he wants to see Government funding for affordable housing scaled back and more incentives put in place for developers.

During the environment hustings, Sunak was slightly more vocal about his green policy intentions. He said he would keep the 2050 net zero targets and would focus on improving the energy efficiency of the country’s housing stock, saying the UK has ‘the worst houses in Europe’. He pledged to look at launching a new energy efficiency scheme – hopefully more successful than the Green Homes Grant launched in 2020. He said the new scheme would concentrate on measures such as smart heating controls and cavity wall insulation.

Sunak has signed up to the Northern Research Group’s (NRG) pledges, which include a commitment to a new Minister for the North, more devolution, a levelling-up ‘formula’ to ensure ‘left behind’ places get the Government funding they need, and two new vocational colleges – ‘the vocational equivalent of Oxford and Cambridge’, dubbed ‘Voxbridge’. He has also vowed to scrap EU Solvency II rules to encourage investment into infrastructure.

After just one month in the role of Chancellor, Sunak delivered his first Spring Budget in March 2020, during which he announced a £12bn Affordable Homes Programme. It was welcomed by the sector as one of the largest settlements in years. A few weeks later, he announced a temporary change to Local Housing Allowance rates to cover the cheapest third of rents during the pandemic. He also decided to introduce a £20 a week uplift to Universal Credit.

During Robert Jenrick’s time as Housing Secretary (between 2019 and 2021), Sunak signed off on the £5bn Building Safety Fund, however, he later said the Treasury was unwilling to increase funding despite the significant bills being handed out to leaseholders. Sunak told Jenrick’s successor Michael Gove that the Department for Levelling Up, Housing and Communities would have to step in and use their own budget if developers refused to pay for building safety remediation, rather than asking for more from the Treasury.

Liz Truss on the cost of living

Liz Truss has committed to £30bn of tax cuts and has said she would start implementing them ‘from day one’. She said she would cancel the planned 6% rise in corporation tax and during Monday night’s debate criticised Sunak’s plans to increase business taxes, arguing they would push the country into a recession.

Truss has also promised to cancel the National Insurance increase, which came into force in April this year. She said she would immediately bring in an emergency budget, arguing that it would alleviate the cost of living crisis. Truss has also pledged to hold a review of Government spending and believes the Government can and should borrow more. She has vowed to take a ‘tough stance’ on public sector pay and has highlighted the need to avoid wage price spiral. She said she would lift green levies on energy bills for two years.

Liz Truss on housing

The Foreign Secretary has pledged to amend the Levelling Up and Regeneration Bill to scrap centralised ‘Stalinist’ housing targets and would make it simpler for developers to build on brownfield land in ‘opportunity areas’ by focusing on deregulation and tax incentives. These areas would be low tax zones and would have lower businesses rates and fewer planning restrictions in the aim of encouraging investment and development. She vowed to introduce zones in the North of England. As has Sunak, Truss has signed up to NRG pledges.

She is generally very pro-development, as can be seen in a video posted in 2019 in which she speaks about the need to build more homes. The same year she told the Mail on Sunday that one million homes should be built on the green belt around London and that villages should be allowed to expand by four or five houses a year without having to go through planning. She thinks the UK should ‘build up more’ in cities and has previously expressed her support for zonal planning – a system that would see permission granted automatically on sites that have been earmarked for development.

On net zero, Truss has said she would maintain the 2050 targets and would introduce a ‘temporary moratorium’ on green energy levies ‘to enable businesses and industry to thrive while looking at the best way of delivering net zero’. Green levies are an environmental charge added to energy bills, dubbed a ‘social and environmental obligation’ by Ofgem. The money goes towards supporting the installation of energy efficiency measures in lower-income or vulnerable households.

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