Published: 17 October 2022
By Suzanne Evans, Director, Political Insight
Prime Minister Liz Truss fired Chancellor Kwasi Kwarteng and scrapped more of her economic plans on Friday. In a press conference, she said she accepted that her government's plans for tax cuts had gone "further and faster" than investors were expecting, saying "I have acted decisively today because my priority is ensuring our country's economic stability…I want to be honest, this is difficult. But we will get through this storm." She announced she was not taking forward her earlier proposal to cut Corporation tax, but will instead continue with the plans of the previous Boris Johnson administration to raise it from 19% to 25% this Spring, saying this reversal will raise £18bn a year. She had already rowed back on her planned abolition of the 45p top rate of income tax. Nevertheless, Truss pledged in her press conference to see through her low-tax agenda, saying her mission remains the pursuit of a "low-tax, high-wage, high-growth economy".
It is not clear this morning whether Truss’s pledge to cut the basic rate of income tax by 1% from 2024 to 2023, will go ahead or not. Reports yesterday from reliable news sources suggested a delay is likely.
What currently remains of the September 23rd mini-budget?
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Reversal of the previously proposed 1.25% rise in national insurance contributions (NICs)
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No tax hikes to fund health and social care
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The energy price guarantee to freeze average bills at £2,500 a year until 2024, plus energy support for businesses
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Nil-band rate of stamp duty doubled to £250,000 and additional support for first time buyers
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Freeze on alcohol duty
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Abolition of the cap on banker bonuses
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Creation of 38 investment zones across the UK with lower taxation and planning rules
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Repeal of IR35 reform from April 2023
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Digital VAT-free shopping scheme for international tourists
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No changes to Capital Gains Tax, Inheritance Tax or VAT.
Truss has put Jeremy Hunt, a former foreign and health secretary who backed her rival Rishi Sunak in the Conservative Party leadership race in Kwarteng’s place, making him the fourth Chancellor in four months. Hunt promptly put on record his belief that some taxes might have to rise and others might not fall as much as planned, signalling a further shift away from Truss's original plans. Hunt will announce fresh tax and spending measures at 11am today, two weeks earlier than previously scheduled, in an attempt to calm the money markets, having told the BBC in an interview yesterday that “nothing was off the table”. "What I'm going to do... is to show the markets, the world, indeed people watching at home, that we can properly account for every penny of our tax and spending plans," he said.
Bank of England Governor Andrew Bailey spoke with Jeremy Hunt on Friday after he replaced Kwasi Kwarteng. "I can tell you that there was a very clear and immediate meeting of minds between us about the importance of fiscal sustainability and the importance of taking measures to do that," he said. Speaking in Washington DC at the same meeting hosted by the International Monetary Fund which Kwarteng left early having been fired, Bailey was openly critical of the government’s failure to task The Office for Budget Responsibility to weigh up the impact of the mini-budget before it was announced, saying: "Flying blind is not a way to achieve sustainability". Bailey also hinted at a big interest rate rise by the central bank next month.
In a breach with diplomatic protocol, US President Joe Biden waded into the row on Saturday, telling reporters: "I wasn't the only one that thought it was a mistake, referring to Truss’ fiscal plans. “I think that the idea of cutting taxes on the super wealthy at a time when - anyway, I just think - I disagreed with the policy, but that’s up to Great Britain to make that judgment, not me" he said. The White House had previously declined to comment. (NB: Truss proposed cutting the top income tax rate in the UK to 45% from 40% for those earning over £50,270. In the US, the top rate of tax is 37% for anyone earning over £468,510.)
Despite unfunded tax cuts in the mini-budget apparently being responsible for market woes, analysts at bankers Goldman Sachs have downgraded Britain's economic outlook after Prime Minister Liz Truss removed Kwasi Kwarteng as chancellor and made U-turns on tax policy. Bloomberg News reported the bank as saying: "Folding in weaker growth momentum, significantly tighter financial conditions, and the higher corporation tax from next April, we downgrade our UK growth outlook further and now expect a more significant recession".
The Competition and Markets Authority (CMA) has announced a proposal to restrict how much Motorola can charge the emergency services to use its Airwave network, which provides an "essential" separate and secure mobile network for 999 services. Motorola was commissioned to build and operate the Airwave network by the Home Office in 2000, a contract that was due to end in late 2019 or early 2020, when the network was expected to be replaced by a 4G solution called the 'Emergency Services Network' (ESN). However, because the new ESN was not ready for switchover as planned - and will not be ready until 2026 at the earliest - the emergency services are still using Airwave. Having launched a market investigation of the monopoly provider in October, the competition watchdog found Motorola charges the Home Office prices it says are "well above" competitive levels, resulting in higher costs for taxpayers, hence the proposal to restrict charges. The price set under the original agreement between the Home Office and Motorola included the capital costs of building the network, the CMA said, and by the time the period covered by the original agreement ended, that cost should have been recouped, and the price should have fallen "substantially," but that did not happen. Consequently, the CMA said it thought Motorola could make in the region of £1.1bn excess profit from the operation of the network between January 2020 and December 2026 and, if they ESN rollout continues to be delayed, Motorola could make around a further £160m excess profit each year after 2026. The CMA also highlighted a potential conflict of interest because of Motorola's dual role in both providing the current network, and in helping to deliver the ESN to replace it.
Electric battery start-up Britishvolt is holding emergency fundraising talks with carmakers and other potential investors that may lead to a sale of the business. The Financial Times reported on Friday, that Britishvolt risks running out of money before Christmas, because recent market turmoil has prompted shareholders to pull out of its latest funding round. CEO Graham Hoare told the newspaper the business needs to raise about £200m to fund it until next summer, when it expects to receive the first orders from carmakers for its batteries. Britishvolt shipped prototype cells to a handful of carmakers last month, and has received "tremendous feedback" so far, he said, but gave examples of two potential investors who had done due diligence but pulled out at the last minute over concerns about the UK market conditions. Last month, the FT reported the business is burning close to £3m a month on pay after hiring almost 300 people, even though it does not expect to generate revenues until the middle of the decade. Britishvolt has also delayed some investment plans at its factory site in Blyth, Northumberland, and closed an overseas office in the Middle East to preserve cash, the FT said.
JD Sports said on Friday that it has bought a further 18% interest in Spanish online sports retailer Deporvillage from co-founders Xavier Pladellorens and Àngel Corcuera for €19.8m (€17.22). The stake was purchased through Iberian Sports Retail Group (ISRG), JD's Spanish division. Following the transaction, ISRG owns 98% of Deporvillage, while the co-founders have retained a 2% interest. As part of the deal, the co-founders will step away from management of the business following a transition period. Deporvillage specialises in cycling, running, outdoor, and other sports categories and is currently the number one online sports retailer by market share in Spain, and has a well-established presence in Italy, Portugal and France, Sharecast News says.
Tesla founder and CEO Elon Musk is being investigated by the US federal authorities in connection to his $44bn (£39.37bn) takeover of Twitter, it was reported on Friday. The claim has been made by Twitter in a court filing which seeks to subpoena Musk's lawyers to hand over certain documents but which they are refusing to disclose, claiming "investigative privilege". The social media firm did not explain in the court papers why the Tesla and SpaceX billionaire was under investigation, nor did it say which authorities were carrying it out.
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