Kwasi Kwarteng’s ‘fiscal event’ was so unusual and has caused such turmoil that it is worth reflecting on 10 days later, says Richard Steer.
In normal circumstances, picking over the bones of a Budget – or in this case a mini-Budget – 10 days later would seem a little pointless. After all, given this morning’s announcement about cancelling the plan to scrap the 45p tax rate, who would bet against umpteen further U-turns, reversals or changes of mind before the first of the Christmas tinsel appears.
However, Kwasi Kwarteng’s “fiscal event” towards the end of last month was so unusual and impactful upon all of us working in the built environment that I feel it is worth a more forensic examination with the benefit of a little time.
Ignoring the tax cuts and bankers’ bonus issues which are still stealing the headlines, most of us will be affected either directly or indirectly by the proposed infrastructure boosts, new investment zones, land, planning, and stamp duty cuts outlined by Kwarteng. If he sees this as a “mini-Budget”, I can only imagine what measures the full-fat maxi version will contain…
Breaking down the main aspects of the Chancellor’s changes, we need to look first at infrastructure. Over 138 projects have been announced that will be “prioritised for acceleration” in sectors such as transport, energy and telecoms.
To aid this, the government has said that it will streamline a whole host of assessments, appraisals, consultations, duplications and regulations. Not a lot of the projects were new – around 86 road schemes, 10 rail, 15 local transport, and five oil and gas projects were listed. Mysteriously, there was no mention of Boris Johnson’s 40 “new” hospitals or schools by the new Chancellor of the Exchequer?
The plans sound a lot like the post-Brexit freeports and I am dubious about whether they will survive in their present form
On housing, the stamp duty measures he announced also grabbed attention. However, for most people, especially first-time buyers with average house prices, the saving of £2,500 will hardly be a deal breaker.
With interest rates forecast to rise and mortgage costs increasing by the week, the stamp duty cut will not help anyone struggling to raise their deposit. Also, with a focus on land supply and the speeding up of the planning process, many Nimby-influenced MPs within the chancellor’s own party are already starting to voice concerns. Housebuilders’ shares plummeted at the thought of the Bank of England having to raise interest rates to stave off inflation.
The investment zone conversations in Tees Valley, the West Midlands, Norfolk and the west of England are already well underway but – and excuse my scepticism – how many times have we heard that, to foster growth, planning rules will be liberalised, releasing land and accelerating development?
The plans sound a lot like the post-Brexit freeports and I am dubious about whether they will survive in their present form. Already we are seeing wildlife organisations like the RSPB, National Trust and Campaign to Protect Rural England up in arms at the suggestion that developers will be given free rein.
The last time that this middle-class, middle England constituency was alienated it ended up with the prime minister being booed at Platinum Jubilee celebrations in St Paul’s Cathedral. Liz Truss will not want to suffer the same fate as her predecessor…
Our skills crisis is probably one of our sector’s major inhibitors to growth and now around 120,000 more people on Universal Credit will have to take active steps to seek additional, better-paid work or face having their benefits reduced. Maybe some will look to construction as an option?
In addition, some of the more complex IR35 self-employment rules – an important issue in construction – will be repealed. This is all good in theory, as are the much rumoured and somewhat controversial plans to water down immigration restrictions to bring in vital specialist tradespeople.
The problem with all this is when and how? There are expected to be nearly 250,000 vacancies in the built environment during the next few years. It may all be too little too late.
The disastrous impact of Kwarteng’s announcements on sterling will push up materials costs and inflationary pressure will continue to impact wages in our sector. Offering investment zones and a free pass on planning is academic if it is cost prohibitive to build at all
This brings me to my final point and why I feel that this mini-Budget deserves special attention. You may recall that only around 80 of Truss’s own MPs supported her as the best candidate to become prime minister when she scraped through the first leadership ballot. That suggests that many are therefore either agnostic or sceptical about her strategy.
The disastrous impact of Kwarteng’s announcements on sterling will push up materials costs and inflationary pressure will continue to impact wages in our sector. Offering investment zones and a free pass on planning is academic if it is cost prohibitive to build at all.
With less than 24 months to go before the next election, Truss will have very little time to deliver against a background of internal dissent and external market pressure. You have to go back a long way in history to see a Budget received with such ill-disguised unpopularity by the markets.
While I imagine that some in construction and property may feel that they could benefit from the sudden burst of testosterone-induced optimism brought about by this muscular fiscal event, many more – like me – may be less enthusiastic.
I recall the adage that “a new government can campaign in poetry but always has to govern in prose”. I think this mini-Budget showed that this government is still in campaign mode, preferring to be guided by rhetoric rather than grounded by reality.
Published first in Building Magazine.